Topic 26: Raising additional funds from property Flashcards
What is a further advance?
Further borrowing secured on a property from the existing mortgage lender, by the same legal charge.
What is a Deed of postponement?
Allows a further advance to ‘jump the queue’ and become part of the first charge.
What is Tacking?
The process of adding a subsequent mortgage to an original one after postponing an intervening second charge – the further advance is ‘tacked’ on to the original mortgage.
What is a Drawdown facility?
Some mortgage arrangements set a maximum loan to value available, with the borrower able to draw down further amounts up to the limit with minimal administration.
What is a Second-charge business loans exemption?
A second charge will not be subject to MCOB rules if it is for business purposes and for more than £25,000.
What is Closed bridging?
The borrower has a confirmed ‘exit strategy’ (ie feasible plan) for repaying the loan within an agreed timescale. Typically, this is through the sale of the existing property and it requires the borrower to have exchanged contracts with a buyer. Closed bridging usually starts at or just after exchange of contracts or conclusion of missives. This is less risky than lending to someone who has no buyer. In other, less typical cases, the
borrower might have funds secured, but they will not be available before purchase of the second property.
What is Open Bridging?
The borrower needs finance to buy the new property but does
not have a firm buyer for their existing property. This can represent a high risk
for lender and borrower because there is no guarantee that the property will be
sold within a reasonable period of time. Borrowers should be advised to think
very seriously before committing to this arrangement. Open bridging interest
rates are higher than those for closed bridging, due to the increased risk.
