How Does a Mortgage Work when Buying a House?

6th October 2016

By Licensed Conveyancer and Property Lawyer Sarah Ryan

The majority of home buyers will require a mortgage to finance their property. It can be a daunting prospect to understand mortgages, what type you require and how much it will cost.

You should always seek expert financial advice when considering any mortgage or loan. Contact a specialist who can talk you through the process, explain the different types of mortgage and what is involved. You should consider a mortgage as soon as possible as this should form part of your budgeting. For more details see our 8 Step Guide to Buying a Property.

What Do Mortgage Lenders Want?

Each mortgage lender will have different requirements when considering whether they should offer you a mortgage. Some of the more common requirements are:

  • The purchase price and value of the property
  • Your income, outgoings and affordability
  • The mortgage amount you require to purchase the property
  • Your financial and credit status

Mortgage Lender Requirements

Once you have a mortgage offer agreed in principle the lender will usually undertake a valuation of the property you want to buy. This is usually for the lender to confirm the property has not been overpriced or requires additional works. The mortgage lender will always look for confidence that if you fail to keep up repayments they will be able to recover the money they have loaned you by repossessing the property.

The Mortgage Offer

When you have met the mortgage lenders application requirements you will be asked for the name and contact details of the Lawyer acting on your behalf. The lender will send you a copy of the mortgage offer and a duplicate copy to your Lawyer. If your Lawyer is not on the Lender Panel the lender will appoint their own Lawyer. For more details see our Top Tips on Choosing a Conveyancer.

Mortgage Lender Instructions

If your Lawyer is on the Lender Panel they will be asked to act on behalf of the lender and you. Your Lawyer will be required to undertake certain work and checks to protect the lender before your mortgage funds can be released.

Most lenders are affiliated to the Council of Mortgage Lenders. This means that the majority of instructions provided to your Lawyer will be standard. You can check the requirements here.

The mortgage lender may also include different conditions depending on your application or outcome of the valuation, this could be:

  • Additional Works – there may be a condition to provide a specialist report prior to release of funds such as a timber or damp proof report. If this is the case you will be required to obtain this and provide it to your Lawyer or lender before exchange of contracts. If additional works are required you may want to consider a reduction in your offer. 
  • Confirmation Specific Rights Exist – when the valuation is completed it may uncover access problems. The lender may then request specific evidence of rights of access to and from the property before funds are made available.
  • Evidence Debts Have Been Repaid – a lender may include a condition in the offer that certain debts are repaid before the mortgage funds are made available to you. This will depend on your own circumstances and is not a standard requirement.
  • Evidence of Works – the property valuation may uncover works carried out at the property such as an extension or walls removed. The mortgage lender will usually request confirmation the works have been completed in accordance with statutory requirements including planning permission and building regulations.

Your Lawyer must ensure they comply with all of the mortgage lender requirements and instructions before you exchange contracts. If they do not and you exchanged contracts there is a risk the mortgage offer could be withdrawn if the conditions have not been met, this could then jeopardise your deposit.

At times it can be frustrating waiting for the additional work and checks to be completed. However, it is important that your Lawyer completes all the requirements on your behalf and also your lender.

Release of Mortgage Funds

Once all requirements have been completed your Lawyer will confirm they are happy with the documentation by completing a Report on Title also known as a Certificate of Title. This document will be sent by the Lawyer to your mortgage lender confirming they are in a position to proceed and requesting the mortgage funds are released in readiness for completion. The document will usually be sent 5 days before the set completion date to ensure the lender has sufficient time to release funds.

The mortgage lender will complete their final checks upon receipt of the Certificate of Title and schedule the release of funds. If any conditions remain outstanding they will notify your Lawyer and not release funds until they are satisfied all conditions have been met.

As part of the property buying process you should factor in the time it takes to apply for a mortgage, the valuation to take place, the offer to be produced and the requirements your Lawyer must complete before the mortgage funds can be released.

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