What Does My Mortgage Deed Commit Me To?

In his latest blog, Trainee Solicitor Michael Radze-Constable discusses what signing a mortgage deed means….

This September, UK Finance identified that there are currently 9 million outstanding residential mortgages in the UK. Therefore, many of us will be familiar with the lengthy and formal process of obtaining a mortgage, which culminates with the execution (signing) of the Mortgage Deed.

What Is A Mortgage Deed?

Distinguished by a specific reference number, unique to the lender, a Mortgage Deed is the formal deed, which you as a borrower must sign to acknowledge that you consent to the terms set out in your mortgage offer.

Once signed, the Mortgage Deed becomes a legally binding document. Therefore, you should think very carefully before signing the document, as signing the mortgage deed will commit you to the following obligations:

Repayment of the Mortgage – For capital repayment mortgages, you will be expected to repay the mortgage within a defined time period. Typically, mortgages are of a long duration (10, 20, 30 or more years) which allows for comfortable repayment of the mortgage through monthly payments. Should you fail to keep up monthly payments, the lender can repossess their security (your house). It is therefore vital to keep up your monthly payments and plan ahead to protect yourself against volatile interest rates as witnessed in the past few months. In total, mortgage payments are set to rise by £26 billion a year by the end of 2024, with higher income households expected to face the biggest increase in mortgage costs. London will see the biggest increase, with average payments projected to rise by £8,000 (more than twice the level of the £3,400 increase experienced by Welsh households).

Not letting out the property – If you are looking to acquire a property to rent out, then you should be looking for a buy to let mortgage. A typical residential mortgage will prevent you from lending out your property without the lender’s permission as this amounts to mortgage fraud. The consequences of this are significant; the lender could demand that you repay the mortgage immediately, otherwise they will repossess the property.

Keeping up buildings insurance –The lender is acutely aware that numerous acts of nature can occur that can damage their security, such as lighting strikes, a tree toppling over in a storm or heavy rain fall flooding. The lender will still expect you to keep up your monthly mortgage payments even if your house is damaged. Consequently, it is vital that you take out buildings insurance to cover for such an eventuality. Buildings Insurance should ideally be put in place from exchange of contracts, as it is at this point that the transaction to purchase the property becomes legally binding. Otherwise, between the exchange of contracts and completion of your matter, something could happen to your property, and even though you have not yet moved in, you would still be legally obligated to buy a damaged or even decimated property.

Summary

The above is just an example of a few key obligations within your mortgage deed. At Timms, we will always provide you with a mortgage report, which will identify the essential elements of your mortgage offer and its conditions. However, you should take the time to properly read and understand all the terms and conditions within a mortgage agreement before you sign the accompanying deed and take financial advice from a suitably qualified expert, prior to entering into the mortgage.

Michael Radze-Constable
November 2022

 

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