Prop12.7: Finance and acting for a lender Flashcards
Why does a lender take the first legal charge over the property?
As security for the loan
If the property is unregistered, when should the solicitor register the property to the HMLR and what else will they need to do if the property is in a mortgage
carry out an application for first registration within 2 months of completion and ensure that a lender’s mortgage is registered on the newly created charges register.
If a buyer puts some of their own money towards the purchase, their solicitor must comply with
Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)
Regulations 2017 - must check all sources of funds and the source of wealth
If the buyer is not taking out a mortgage they are called
a cash buyer
Who is under a duty to check the source of funds and the source of wealth used for deposits?
The buyer’s solicitor is under a duty to ensure that any cash
contributed towards the purchase is checked in accordance with the Money Laundering,
Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
A buyer’s solicitor must check the source of funds as a first step - what are these?
establishing where the cash is
being held. Usually should be a UK based bank account or building society account
What is the second stage?
Establish where the cash is being held ie. the source of the wealth as the second part of money laundering compliance
If the buyer cannot show the source of the funds, what should the buyer’s solicitor do
The solicitor should consider
reporting the matter to the firm’s Money Laundering Reporting Officer
Gifted deposits - what steps are required?
the buyer’s solicitor should carry out the same source of funds and
source of wealth checks.
Taking a legal charge over the
property as security for the loan apply equally to
residential and commercial properties
What does the lender require the buyer to complete?
mortgage valuation report - survey of the property to establish the physical structure etc and that it represents a good security for the loan
Can the buyer rely on the mortgage valuation report if they notice a defect?
No. carried out for the lender by the buyer on behalf of the lender. The buyer should have commissioned their own survey to rely on
Separate representation means
In a commercial property transaction, it is more likely that the mortgage lender will appoint their
own solicitor from the buyer.
There are different types of
Mortgages
Repayment mortgage
the borrower repays an element of capital and interest every
month and the loan is paid off at the end of the term.
Interest-only mortgage
the borrower repays only interest during the term of the loan. The
capital remains outstanding for the term of the loan and the borrower must have an
investment plan in place to pay off the capital at the end of the term.
Endowment mortgage
A mortgage product combined with a life insurance policy. Each
month the borrower pays insurance premiums with the aim of the life insurance maturing at
the end of the term to pay off the mortgage. These investments have not proved successful
over time, and this is now a rare mortgage product.
Pension mortgage
A type of mortgage linked to the borrower’s pension and is typically
used by borrowers who are self-employed
Sharia-compliant mortgage
a type of mortgage product offered by specialist lenders that
is compliant with Islamic law
Why can’t a solicitor give advice on mortgage product or lender?
This is to
ensure compliance with regulatory requirements in the Financial Services and Markets Act
2000.
Standard instructions and lender requirements are found in (in a residential context)
- UK Finance Mortgage Lenders’ Handbook for Conveyancers (known as “the Handbook”),
or - Building Societies Association, Mortgage Instructions.
Most lenders follow the
Handbook - UK Finance Mortgage Lenders’ Handbook for Conveyancers
Is there a conflict of interest when a lawyer acts for the buyer/borrower and lender?
No - both parties are the same, that is, both buyer/borrower
and lender want a property with a good and marketable title. But in a commercial transation they often do instruct different teams
Should a lawyer act for a person gifting a deposit and the buyer?
No because the interests of anyone gifting a deposit to a buyer or of a prospective non-owning occupier on
completion are different to that of the buyer
