Mortgage process
The mortgage application process
Buy to let house insurance is more often than not called, Landlord Insurance.
The mortgage application process involves the following activities:
- completion of the mortgage application form;
- checking status checks to confirm ability to repay and consistency of information provided with the criteria laid down in the lending policy;
- valuation of the property to ensure it provides adequate security for the loan sought and to ensure that it is consistent with lending policy;
- risk decision by the lender on whether to sanction or decline the application;
- issue of an offer of advance;
- applicant instructs solicitors to commence legal work;
- the solicitor deals with the steps necessary to purchase of the property and also draws up the mortgage;
- completion
Underwriting the mortgage
The mortgage application is usually accepted at the point of sale, but there are several checks that the lender makes before an issuing an offer of advance. These checks are carried out by the mortgage underwriters.
The underwriter's duties are as follows:
- to ensure that the mortgage application is consistent with lending policy in terms of status, affordabilitv and personal circumstances of the applicant and the security offered;
- to ensure that all documentation submitted to support the application is in order;
- to ensure that all necessary checks have been made;
- to ensure that statutory obligations have been fulfilled, such as compliance with the money laundering regulations.
Offer of advance
Nature of the offer of advance
The offer does not bind the lender as a contractual commitment to lend and is always made conditionally. It should be regarded as an expression of willingness to enter into a contract with the applicant, subject to specific conditions being met.
In legal terms therefore, the offer of advance is an invitation to treat (or invitation to do business).
The offer is usually issued by sending a standard form to the applicant. The offer always includes
- standard conditions that are applicable to all mortgages; and
- special conditions applicable to each individual application.
Right to withdraw the offer
Under certain circumstances the lender may withdraw the offer. This could arise because:
- subsequent to the issue of offer new information becomes available that changes the nature of the risk, such as a borrower losing his or her job or taking lower paid employment;
- it is found that some of the information provided at offer stage is untrue;
- the property may be damaged or destroyed;
- an intention to defraud the lender is discovered.
Contents of the offer of advance
The offer should set out information on the customer, the property to be mortgaged, details of the mortgage to be provided and any conditions that will apply to the mortgage.
Personal details of applicant(s):
- name(s) and current address(es);
- customer number.
Property to be mortgaged:
- address (or if new, plot number);
- tenure (freehold, leasehold or commonhold in England. Wales and Northern Ireland, or absolute in Scotland).
The mortgage:
- amount offered and the term;
- method of repayment - interest only or capital repayment;
- monthly repayment;
- initial rate of interest and the Annual Percentage Rate (some lenders specify APR only);
- characteristics of the rate of interest applicable to the account, such as whether it is fixed, variable, discounted, stepped or capped;
- the period for which any initial interest rate condition will apply and a statement that the rate will revert to standard variable rate on a specified future date;
- cash back and claw back;
- fees and charges, including early repayment fees.
Conditions of offer:
Most lenders include the following standard conditions of offer:
- the lender may withdraw or vary the offer at any time up to completion;
- the offer will expire after a specified time;
- the offer is made subject to the property being vacant of any third party occupants;
- the offer is made subject to satisfactory investigation of title (examination of title in Scotland);
- the lender accepts no responsibility for the price or value of the property being reasonable;
- the lender accepts no responsibility for the condition of the property.
Some mortgages include specific conditions. These may include:
in England, Wales and Northern Ireland, where property is to be occupied by a person over 17 years of age who will not be a party to the mortgage, a requirement for the non-owning occupier to sign a consent to mortgage form, waiving rights of residency;
- the offer is made subject to a higher lending charge being paid by the borrower;
- undertaking to carry out specified repairs within a specified time;
- retention of funds that will be released when repairs have been carried out;
- stage payments and drawdown intervals (self-build projects);
- completion of access roads;
- repayment of other borrowings (this is a common condition when the mortgage is for debt consolidation);
guarantor contract
Legal formalities
A copy of the offer is usually provided for the solicitor by the lender or the applicant. The solicitor then confirms with the applicant that the property purchase and the mortgage are to go ahead and then start work on the work necessary to complete the house purchase transaction and the formalities necessary to set up the mortgage. In addition the solicitor may have to discharge the client's existing mortgage from thii1 proceeds of sale of his or her current property.
Mortgage related requirements
An applicant may have to enter into other contracts prior to completion. These include the following mortgage-related transactions.
Nearly all lenders insist that the property is covered for its full reinstatement value by a suitable buildings insurance policy. This can be provided either by the lender through a agency arrangement with its lead insurance company or by the applicant. Most borrowers take out combined buildings and contents insurance. The lender insists on evidence of cover being in place and will always require that:
the insurance company is reputable;
the sum insured is the full reinstatement value of the property as estimated by the valuer;
the major perils are covered by the policy;
the lender's interest in the policy is noted;
large claims will be paid to the lender, or jointly to the lender and the borrower;
the lender will be notified of non-payment of premiums.
Buildings insurance should be in place by exchange of contracts (or conclusion of missives in Scotland). This is because the borrower is legally committed to buy and therefore has a financial interest in the property, even though it is not legally owned until the completion date.
Completion
The mortgage takes legal effect from the completion date. This is usually the same date as that on which the property is legally transferred to the purchaser. On completion:
- the legal charge (standard security in Scotland) is executed and the rights of the lender and the duties of the borrower come into effect;
- all deeds of assignments become effective;
- the property is legally transferred from to the new owner;
- the solicitor engrosses the transaction - bringing together all monies received and due, such as payment for purchase of the property, repayment of the existing mortgage and applying other funds due (such as the balance of purchase price and mortgage);
- at the appropriate entry time on the completion date, the borrowers can gain access to the property.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
