Stage 6: Funding

Question 1

what information must the client be sent in the engagement letter?

Answer 1

• Clients must be sent an engagement letter inc. info about costs i.e. SDLT

Question 2

source of funding?

Answer 2

• Sources of funding: loans (from bank or family members), mortgages, large employers (i.e. banks) may offer mortgages at a concessionary rate

Question 3

what advice can the solicitor give about a mortgage?

Answer 3

• If the client asks about the most appropriate funding, the solicitor should only give advice is they know the knowledge and are compliance with regulations

Question 4

what is a regulated mortgage?

Answer 4

where the borrower is an individual, the lender is taking a first legal charge over a UK property and at least 40% of the property is intended for occupation of the borrower or their immediate family

Question 5

explain the regulations and regulated mortgages

Answer 5

• Arranging or providing advice about a specific mortgage product is a regulated activity (RA). Therefore, the solicitor must either be authorised by the FCA or rely on an exemption under FSMA 2000 to do this.

Question 6

when can solicitors advise on regulated mortgages?

Answer 6

• Arranging or providing advice about a specific mortgage product is a regulated activity (RA). Therefore, the solicitor must either be authorised by the FCA or rely on an exemption under FSMA 2000 to do this.

o S327 allows firms regulated by the SRA to carry out RAs if it is incidental to their main professional services (i.e. a solicitor can arrange a regulated mortgage for a client as part of the property purchase if this is secondary to their primary role in the transaction)

Question 7

when can the solicitor recommend a regulated mortgage?

Answer 7

• The solicitor cannot recommend a specific regulated mortgage unless it is endorsing advice already provided by an authorised person

Question 8

what can the solicitor provide advice on a regulate mortgage?

Answer 8

• NB: solicitor can provide general advice (i.e. about the different types of mortgage or executing a mortgage on the advice of an independent 3rd party)

Question 9

what are the types of mortgage?

Answer 9

• Repayment mortgage - monthly payment towards loan + interest.
• Interest-only mortgage - monthly payments of interest only

Can be a combination of both

Question 10

explain a repayment mortgage and the advantages

Answer 10

monthly payment towards loan + interest.
o Interest can be: lender’s standard variable rate (SVR); fixed for a set period; or agree a tracker rate % above the UK base rate for a set period
o When the period expires, SVR applies.
o Advantage  borrower has paid the mortgage at the end of the term

Question 11

explain an interest-only mortgage and the advantages

Answer 11

• monthly payments of interest only
  o Advantage  monthly payments are often lower than repayment mortgage
• Can be a combination of both

Question 12

when will the mortgage be a legal mortgage?

Answer 12

The mortgage will only be a legal mortgage if is it is made by deed and registered (mortgages made by deed have an implied power of sale)

Question 13

what is the max mortgage?

Answer 13

• Max. mortgage available is 95% of the PP

Question 14

what are the lender’s typical requirements?

Answer 14

• Lenders will have requirements for the buyer to meet e.g. obtaining a valuation and buyer’s solicitor preparing a certificate of title

Question 15

what happens if the borrower satisfies the requirements?

Answer 15

Once satisfied, the lender will issue either a:
o Mortgage offer (residential & simple commercial loans); or
o Commitment letter inc. a term sheet and facility agreement with detailed terms of the lending agreement (complex loans)

Both documents set out: the loan amount; interest rate; initial repayments; any other conditions (i.e. work the buyer must carry out. There may be a mortgage retention); if the lender can withdraw the offer

Question 16

what is certificate of title?

Answer 16

• COT is not mandatory but is commonly used.
• Purpose = confirm to the lender the property has ‘good and marketable title’

Question 17

what form does COT take?

Answer 17

COT is a series of statements. The solicitor will either do nothing to the statement (thereby warranting is to be true) or make a disclosure against it
o i.e. there is a statement saying there is no right of way. If this is correct, the solicitor will do nothing which implies the statement is true. If there is a right of way, the solicitor will disclose the issue against the statement. The statement themselves are not amended.

Question 18

what COT is commonly used in residential transactions? what does it include?

Answer 18

• LS & UK Finance have developed a COT for residential transactions. It inc.:
  o There are no legal problems and so the lender can safely lend against it;
  o Who will own the property on completion; and
  o The completion date and when the funds are needed

Question 19

explain COT in commercial transactions

Answer 19

• More detail is required in commercial transactions, i.e. report about the property and summary of info obtained in title investigation and searches (City of London Law Society have produced a form which can be used)

Question 20

what can happen if information on the COT is wrong

Answer 20

• If any information is wrong, the lender can sue the firm which have the COT

Question 21

when is COT given?

Answer 21

• The COT is given immediately prior to completion, but drafts will be circulated before to bottom out any issues. The buyer’s solicitor will not exchange until they know the lender is satisfied with the COT and any disclosures.

Question 22

when is a solicitor unlikely to act for lender and borrower?

Answer 22

• Solicitor can act for borrower and lender if there is no COI. Less likely to be a COI if the mortgage is on standard terms.
• This is often the case in residential conveyance but less likely with commercial property where terms are negotiated
  o The lender will often have their own solicitor in a commercial transaction

Question 23

how do the lender’s solicitor and buyer’s solicitor often work together? how does this work?

Answer 23

• Even if the borrower and lender are separately represented, to avoid duplication of costs, the buyer’s solicitor still usually prepares the COT and gives a copy to the lender. Otherwise, the lender will need to obtain the documents and prepare the COT at a cost to the borrower.

o The buyer’s solicitor would be acting for the buyer and the lender in respect of the title to the property only, and not the terms of the loan

Question 24

what is the role of the lender’s solicitor?

Answer 24

• The lender’s solicitor will need to assess COT and advise on any disclosures

Question 25

what can assist conveyancers in terms of mortgages?

Answer 25

• UK Finance Mortgage Lender’s Handbook provides guidance for conveyancers about member mortgage lenders i.e. what a specific lender will lend on, the type of searches required. This is designed for the residential market but can be used in commercial context.