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Arranging a Loan
Loan
Documents
Possibly even before an offer has been submitted, the purchaser may have to
complete loan application forms for his Bank or Building Society. Once a property
has been found (and sometimes only after missives have been concluded) the
lender will process these forms and will obtain from the purchaser's employers
and Bank routine references to confirm the purchaser's salary and whether
he has kept his bank account in the terms he has agreed with his Bank Manager.
Only after all the information has been processed by the lender will an offer
of loan be issued to the purchaser. At the same time, loan instructions will
usually be sent to the purchaser's solicitor. The loan offer and loan instructions
will specify the amount of the loan, the period of repayment and, usually,
the amount of the monthly repayment.
There will usually be papers for the purchaser to sign and return to the lenders at this stage. These will have to be returned immediately to keep delays to the minimum.
Report
on Title
Once the loan instructions have been received, and if the purchaser has complied
with all the lenders requests the purchaser's solicitor should be able to
send his Report on the title deeds to the Bank or Building Society. The Bank
or Building Society should then be able to issue their loan cheque to the
purchaser's solicitor. Accordingly, it should be realised that the obtaining
of the loan cheque cannot always be carried out as quickly as the purchaser
would like if, for example, the purchaser has not handed in his loan application
form in time or if his employer or Bank has been slow to produce a reference
to the lender. If the loan cheque is not available in time for the date of
entry, problems can arise.
Standard
Security
The purchaser will have to grant a Standard Security (a mortgage deed) to
the lender. This document is recorded in the Property Registers along with
the title deed in favour of the purchaser and it gives the lender a number
of rights over the property. The two most important points to note are as
follows:-
1) It is impossible to sell the property without repaying the outstanding
loan at the same time. The new purchaser would be aware of the Standard Security
and, as the Standard Security attaches to the property itself, he will not
be willing to complete his purchase unless the Standard Security is discharged
by the lender.
2) If the purchaser defaults in repaying his loan to the Bank or Building
Society, or is otherwise in some serious breach of the terms of the Standard
Security, then the lender may become entitled to remove the purchaser from
the property and sell the property.
The sale proceeds will be used to repay the outstanding loan and to meet the sale costs, with any balance being paid over to the purchaser. Fortunately, this is a fairly rare occurrence and is a right which is usually only exercised as a last resort by the lender.
In addition to the above points, there are a number of conditions which have to be followed by the purchaser and these will usually be outlined in a booklet provided by the Bank or Building Society. The main conditions include an obligation to insure the property for the full costs of rebuilding it, an undertaking not to rent out or lease the property without the consent of the lender, and an undertaking not to carry out any major alterations to the property without the consent of the lender. However, these are only a few of the conditions attaching to a loan transaction of this kind.
Assignation
of Life Policy
If the loan is an endowment policy loan, then the policy may have to be assigned
to the Building Society or Bank so that, if the sum covered by the policy
becomes payable it will be paid to the Bank or Building Society in the first
instance. The assignation document simply transfers the benefit of the policy
to the Lender for the duration of the loan.
Mortgage Information
Usually, once the loan cheque has been cashed, the Lender will provide the
purchaser with a statement showing the amount of the monthly payments and
the amount of the insurance payments. If you are not clear as to when you
should be making these payments or as to how much should be paid each month,
you should contact your Bank or Building Society branch at an early date.
