UK Mortgages Explained

Mortgages Explained

A mortgage is an interest in property created as a security for a loan or payment of the debt and terminated on payment of the loan or debt. The borrower who offers the security is the mortgagor; De lender, he provides the money, is the purchasers, although there are other providers. A mortgage is generally repaid by monthly installments, usually over a period of 25 years. Repayments may consist of capital and interest (repayment mortgage) or of interest only, with arrangements being made to repay the capital, generally from the proceeds of * endowment assurance policy (endowment mortgage) or a pension policy (pension mortgage). Business uses of the mortgage include using property to secure a loan to start a business. Virtually any property may be mortgaged ( land is the most common).

Under the Law and Property Act of 1925, which governs mortgage regulations in the UK, there are two types of mortgage, legal and equitable. A legal mortgage confers a legal estate on the mortgagee; the only valid mortgages are

(a) at least granted for estates number of years, which terminates on repayment of the loan at or before the end of that period.

(b) the deed expressed to be a *Charge by way of legal mortgage. An equitable mortgage can be created if the mortgagee has only an equitable interest in the property (for example, when the mortgagee is a beneficiary under a trust of the property).

Provided that this is done by deed, the rights of the parties are very similar to those under a legal mortgage. An equitable mortgage can also be created offer a legal or equitable interest by an informal agreement, e.g. the mortgagor hands the title deeds to the mortgagee as a security for a loan. Such a mortgage he has or remedies self possession and foreclosure only. A remortgage for subsequent mortgage may be taken out on the same property provided that the value of the property is greater than the amount of the previous mortgage. All mortgages of registered land are noted in the Register of charges on application by the mortgagee, and a charge certificate is issued. When mortgage to land is unregistered, the first legal mortgagee keeps the title deeds. A subsequent legal mortgagee and any equitable mortgagee he does not have the title deeds should protect their interests by registration.

If the mortgaged property is the mortgagors main residence, the mortgagor is entitled to mortgage interest relief, and income tax allowance on the value of the interest paid on the mortgages. For mortgages made on or after 1st August 1988 the limit of the mortgage relief applies to the property rather than to the borrower. Thus when two or more people share residence, the relief is allocated between them in equal shares. Previously, each occupant (except when couples were married) was entitled to the full relief. One under the MIRAS (* mortgage interest relief at source) scheme, interest payments made by a borrower to a bank, building society etc., are made after deduction of an amount equivalent to the relief of income tax due at the basic rate, and therefore no or the relief is necessary, unless the person paying the mortgage pays tax at a higher rate.

Under the equity of redemption, the mortgagor is allowed and to redeem the property at any time on payments of the loan together with interests and costs; any provisions in a mortgage deed to prevent redemption (known as clogs) are void.

In theory, the mortgagee always has the right to take possession of mortgaged property even have there has been no default. This right is usually excluded by building society mortgages until defaults, and his exclusion may be implied in any installment mortgage. Where residential property is concerned, the court has the power to delay the recovery of possession if there is a realistic possibility that the default will be remedied in a reasonable time. In case of default, the mortgagor has a statutory right to sell the property but this will normally be exercised after obtaining possession first. Any surplus left after the debt and the mortgagee's expenses have been met and must be paid to the mortgagor. The mortgagee also has a statutory right to appoint a receiver to manage mortgage property in the event of default; this power is used for where business properties are concerned. As the final resort, a mortgage may be brought to an end by foreclosure, in which the court orders the transferor of the property to the mortgagee. This is not comment in sound of rising property prices, as a mortgagor would lose more than the value of the debt, so the courts will not order foreclosure where a sale would be more appropriate. However when property values are falling in the mortgagor may have negative equity and the only recourse of the course is foreclosure.

Mortgage-backed security

Mortgage debenture

A loan made to accompany by an investor, secured on the real property of the company .

Mortgagee

A lender who provides a mortgage.

Mortgagor

A borrower who takes out a mortgage.

Mortgagee in possession

A mortgagee (mortgage lender) who has exercised the right to take possession of a mortgage property; this may happen at any time, even if there has been no default by the mortgagor. However, the mortgage deed may contain an agreement not to do this will last a borrower defaults on the loan. In the case of a dwelling house, a court order will be required before the lender can take possession. The court may adjourn the hearing to allow the mortgagor time to pay. The mortgagee will either receive the rents and profits if the property has been let or as or be empowered to manage the property. The mortgagee he is not entitled to reap any personal benefit beyond repayment of the interest and the principal debt, must carry out reasonable repairs, and must not damage the property.

Mortgage interest relief at source (MIRAS)

This is a relief introduced into UK tax legislation in 1983, enabling a qualifying borrower to deduct basic rate tax from interest payments in respect of borrowing for house purchase. There was a limit of borrowing on which relief may be given. Only certain providers of funds are eligible to operate the scheme. No relief on higher rate tax is available under the scheme.

A Mortgage is a long-term loan repaid over a fixed period of time known as a mortgage term. Not all mortgages however do this. Flexible mortgages can allow the borrower to borrow back some of the mortgage when needed, maybe even pay the loan off early or late. A flexible mortgage also lets the borrower make early payments and take payment holidays.

Mortgages are now available for any circumstance

Other types of mortgage

Cash-back mortgage
Flexible mortgage
Current account mortgage
Self Cert Mortgage
Buy-to-Let Mortgage
Adverse Credit Mortgage
First Time Buyer Mortgage

Overseas Mortgages

Spanish Mortgages
Florida Mortgages
Overseas Mortgages