Mortgages - Acting for buyer and bank

Question 1

Example - Question

Answer 1

You act for Rhodri Wilson who is buying a property, 18 The Crescent, with a mortgage from Herts Bank. On 3rd August Herts Bank send you the mortgage advance of £250,000. Completion of the sale is due to take place 7th August. How will you record this using double entry bookkeeping?

Question 2

Who does the money belong to? - Before completion

Answer 2

Until the day of completion the money will belong to the bank/lender. So when it is received by the firm it will need to be recorded as a credit on the client side of the bank/lender’s client ledger with the corresponding debit being recorded in the client cash account

Question 3

Who does the money belong to? - On the day of completion

Answer 3

On the day of completion the mortgage monies will be released to the buyer so that they can be sent to the seller’s solicitor to enable completion to take place. It is at this point that the mortgage advance stops being the bank/lender’s money and becomes the buyer’s money. This is recorded by an inter-client transfer - the bank/lender’s client ledger is debited and buyer’s client ledger is credited with the amount of the mortgage advance