Financing your home purchase (Part 2)
In the second of a two-part series of articles on how different ways of buying a home can affect your legal rights, Louis Mathers conveyancing lawyer with Parnalls in Launceston, explained the implications of using self-funded options and government-backed schemes. In this article, he looks at the implications of using a mortgage or private loan.
Click here https://www.parnalls.com/financing-home-purchase-part-1/ to view the first article.
Conventional mortgages with a bank or building society
Money lent through a mortgage will be secured against your home. It may be that the mortgage is in your name or that it is in the joint names of you and your partner or any other co-owners. All these possibilities have legal implications.
Because the mortgage is secured against your home, the mortgage lender will have certain rights over the property which mean that you will not be able to do everything that an outright owner would be able to do. For example, depending on the type of mortgage you have, you may not be able to rent your home out without your lender’s prior written consent. You may also have to notify them if you intend to carry out any structural building work and arrange to have home insurance in place for a sum which perhaps exceeds the level of cover you believe is needed.
If the mortgage is in your sole name, it will be you who has ultimate responsibility for paying the mortgage debt, irrespective of any agreement you may have made with anyone else sharing the house with you.
If the mortgage is in joint names then you and whoever else is named on the mortgage document will be liable to make the repayments, but be aware that if that other person fails to pay their fair share the mortgage lender will usually be entitled to ask you to settle the whole debt instead. You therefore need to talk to your solicitor about the steps you can take to protect yourself in this situation.
You also need to be aware that:
- your home will be at risk of repossession if you do not keep up your mortgage repayments;
- mortgage arrears could affect your credit rating and may also result in debt recovery action being taken against you at court;
- additional costs associated with a mortgage, such as arrangement or early repayment fees, can be significant;
- you will have to satisfy certain conditions to qualify for a mortgage, which will vary from lender to lender and can be quite complex;
- all banks and building societies have a duty to lend responsibly and to assess affordability, which may limit the amount you can borrow;
- most lenders will expect a deposit of at least 10 per cent; and
- you may find it harder to get a mortgage if your circumstances are unusual, for example if you are self-employed or are close to retirement age.
Mortgage agreements can be complex, but your solicitor should be familiar with your lender’s detailed requirements and therefore advise you on all the possible implications. They can also help you if you fall into arrears with your mortgage repayments and are being threatened with court proceedings.
If your mortgage falls just short of what you need to make the purchase, you may consider taking out a small personal loan. If this is the case, you need to make sure that you can afford to repay this, along with making your mortgage repayments and settling any other costs associated with your purchase. Be aware also that not all lenders will accept a mortgage deposit financed by a personal loan.
An increasing number of personal loan providers are asking for loans to be guaranteed. If this happens and, for example, your mum and dad agree to act as guarantor, you and they need to be aware that if you fail to repay the loan when due, they could be asked to settle it for you.
If the money owed is not repaid, you or they could be taken to court and if this happens and a judgment is obtained, it could seriously affect both yours and your parents’ credit rating and may even result in the loss of your homes.
A bridging loan can be useful where you already own a property which you need to sell in order to buy a new one, but where you need to complete on the purchase of your new property before the sale of your old property is finalised. The problem with bridging loans is that they usually need to be repaid within six to twelve months so you need to make sure that you can still make the repayment if the sale of your old property has not been finalised or, even worse, if the sale falls through.
You also need to be aware that if you have not sold your old home by the time you buy your new one, you may also have to pay a higher rate of stamp duty land tax. Your solicitor can advise you more on this and explore other ways in which the gap in your funding could be plugged.
It is essential to have sufficient finance in place before committing yourself to a purchase and, where money needs to be borrowed, to understand the options available and the legal implications of the arrangement you decide to enter. This article has highlighted some of the options you may consider, but there are other types of arrangement that have not been discussed which have their own, additional legal implications, such as equity release where you are an existing home owner.
Whichever option you choose to go with, you need to budget carefully and always discuss your plans with your solicitor who will be familiar with the whole house buying process and the likely consequences of any decisions you take.
For a confidential discussion about buying a new home, or an explanation of the legal implications of financing your home purchase, please contact Louis Mathers on 01566 772375 or email email@example.com We also recommended that you speak to an independent financial advisor.
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.