Unit 3:4 Mortgage Law

Question 1

Conveyancing

Answer 1

• The property ‘officially’ changing hands
• Borrower = Mortgagor
• Lender = Mortgagee

Question 2

1925 Property Act

Answer 2

• Freehold
• Leasehold
• Commonhold

Question 3

Legal Phrase for Freehold Ownership

Answer 3

• Estate in fee simple

Question 4

Legal Phrase for Leasehold Ownership

Answer 4

• Estate for a term of years absolute

Question 5

Key Provisions 1925 Act

Answer 5

1. Age = No U18s
2. Priority = First Charge over Second Charge lenders
3. Landlord Ability = Cant rent without consent from lender
4. Repossesion = Dont pay they can take your house
5. Insurance Control = Borrowers responsibility to insure property

Question 6

Legal and Equitable owners

Answer 6

• Legal owners appear on title deeds at land registry and have power to sell/transfer property (all legal owners are fully liable for mortgage debt)
• Equitable owners have beneficial interest (rights to property benefits/value) but aren’t on title
• Can be separate (e.g., parent on deed, child as beneficial owner)
• Both interests protected differently under law
• Mortgages require all legal owners’ signatures

Question 7

Joint Tenancy

Answer 7

• Each borrower is 100% responsible for the entire mortgage debt, not just their share
• Lenders can pursue any one borrower for the full amount if others can’t/won’t pay
• Common with joint mortgages and doesn’t depend on ownership percentages

Question 8

Tenants in Common

Answer 8

• Owners hold defined shares of property (can be unequal, like 70%/30%)
• No automatic right of survivorship (your share passes to heirs in your will)
• Allows owners to join at different times with different interests

Question 9

Ownership of Property

Answer 9

• Up to 4 people can own a property with Land Registry

Question 10

Freehold Ownership

Answer 10

• Complete and permanent ownership of both building and land
• No ground rent or service charges to pay
• Free to make property changes (subject to planning permission)

Question 11

Flying Freehold

Answer 11

• Part of a freehold property extends over or under another freehold property
• Common examples: room above a shared passageway, cellar, balcony over neighbour’s land
• Can cause mortgage difficulties due to maintenance and access rights issues
• Can impact property value

Question 12

Leasehold Ownership

Answer 12

• Time-limited ownership (typically 99-999 years) of property but not land
• Pay ground rent and service charges to freeholder (landlord)
• Restrictions on property changes and subject to lease conditions

Question 13

Leasehold Ownership Constraints

Answer 13

• Specific conditions for Maintenance
• Property usage rules (cant run a business etc)
• Common areas duties (corridor, stairs etc)
• Restrictions on alterations
• May be required to insure from specific company

Question 14

Requirements for Leasehold Expiry

Answer 14

• 30-40 years beyond mortgage term
• lenders will usually ask for 90 years+
• so if your mortgage term is 30 years lenders will ask for a 60-70 year lease
• best case if your term is 30yrs they will ask for 120

Question 15

Cost of Extending Lease name

Answer 15

• A marriage value

Question 16

Marriage Value

Answer 16

• applies when a lease has less than 80 years left. It is the difference between the property’s current value and its higher value after a lease extension.
• the leaseholder must pay 50% of this increase to the freeholder as part of the lease extension cost.

Question 17

Commonhold Ownership

Answer 17

• alternative to leasehold for flats/apartments introduced in 2002
• unit owners have freehold of their individual units
• shared areas managed by commonhold association (all owners are members)
• lenders least likely to lend for commonholds
• freehold ownership of individual units in shared buildings (also known as “freehold flats”)

Question 18

Switching from Leasehold to Freehold (Qualifying Tenants)

Answer 18

• original lease granted must be for 21 years+
• building must contain 2 or more flats
• at least 2-3rds of flats must beheld on 21 years+ term
• no more than 25% of building can be non residential
• at least 50% of leaseholders in building must agree to participate

Question 19

Right To Manage

Answer 19

• allows leaseholders to take control of building management without buying freehold
• requires participation from at least 50% of qualifying tenants
• building must be mainly residential (max 25% commercial)
• gives leaseholders power over service charges and maintenance
• freeholder still owns building and collects ground rent

Question 20

Leasehold Reform Act 2022

Answer 20

• stopped landlords charging ground rent on new leasehold homes
• replaced with “peppercorn rent” (effectively zero)
• applies to retirement properties from april 2023
• doesn’t help existing leaseholders unless they extend
• makes leasehold ownership cheaper for new buyers

Question 21

Key Requirements for Right to Manage

Answer 21

• Company must be set up with Articles of Association
• Non participating members must be invited to join
• The freeholder must be sent a notice to claim within 2 weeks
• Freeholder can challenge the claim within a month
• If not challenged RTM gains the right to manage within 4 months