Unit 6:26 Increasing Borrowing Cash

Question 1

Further Advance

Answer 1

• A further advance is additional borrowing on top of an existing mortgage, typically running for the remaining term of the original loan
• Lenders usually require minimum existing mortgage to have been in place for at least 6 months
• Assessed like your first mortgage (first charge)
• The biggest risk is increased likelihood of repossession due to higher loan-to-value (LTV) ratio, placing the borrower in a more vulnerable position
• Key facts illustration required based on advance amount and will include total loan amount

Question 2

Deed of postponement

Answer 2

• A legal arrangement that allows a new loan from the original mortgage lender to ‘jump the queue’ and become part of the first charge
• Enables borrowers to secure additional funding while maintaining priority of the lender’s security position
• Typically used when arranging further advances with the existing mortgage provider

Question 3

Higher Lending Charge

Answer 3

• Typically 75-80% LTV minimum will set up a higher lending charge
• This applies when a further advance increases the total borrowing above this threshold
• The charge helps offset the lender’s increased risk from higher LTV lending
• Sometimes called a Mortgage Indemnity Guarantee (MIG) or Higher Lending Fee

Question 4

MCOB 7, 7A and 7B regulations

Answer 4

• If you take out a further advance the ESIS and the APRC must be based on further advance not whole mortgage

Question 5

Drawdown facility

Answer 5

• Modern flexible and offset mortgages typically offer a drawdown facility, enabling borrowers to take further advances without formal application
• This feature provides convenient access to additional borrowing within pre-approved limits while maintaining regulatory compliance

Question 6

Second-charge lending

Answer 6

• First-charge lenders don’t legally need to approve second charges since their priority isn’t affected
• Land Registry still requires first-charge holder’s agreement to register any further charges
• This creates a practical need for permission even without a legal requirement
• Pre 2016 second charges ar5e called Back Book Loans

Question 7

Business Loan Exemptions

Answer 7

• If you take out a second charge mortgage for a business it is only covered by MCOB if it is less than £25000