Lecture 13 – Mortgages outline
What is a mortgage?
Political and social context: cornerstone of various gvt manifestos, especially conservative
policy. “In a property-owning democracy, the more people who own their homes the
better” – Conservative manifesto of the 50’s. “Turn generation rent into generation buy”.
Reality these days is that the chances of first time byers being able to afford house without
mortgages is very low. Inability for first time buyers to get onto housing ladder.
Why do UK governments promote owner occupation? Concept of social cohesion, to
enhance a sense of upwards mobility, we should all be aspiring to own our own homes.
Definition: A secured loan. Entered into between a mortgagee (lending party) mortgagor
(the borrower). Mortgage is a third-party interest, i.e. the mortgagee’s interest over the
mortgagor’s estate. You can have several mortgages on the same property (usually what
happens is people overextend themselves). You can also mortgage a freehold or a long
leasehold.
You have to ask: can you afford repayments? If you cannot and you thereby default on your
repayments, it becomes a question of priorities, i.e. which bank has priority over the other
(not necessarily ‘first mortgage’, it will depend on the registration. Important to recognise
who the other lenders are. Also question whether the current value of the property will
cover the mortgage. In instances where it doesn’t, it’s referred to as negative equity.
Repayment methods:
(1) Standard repayment options, mortgages are repaid by monthly payments of capital &
interest over 25 years (could be a tracker, fixed or variable rate). Distinction between
capital sum owed to them and the interest on that capital sum.
(2) Interest only repayments and then capital repaid in lump sum in certain conditions –
(i) Proceeds of life (on death)/endowment (at end of mortgage term) insurance
policy
(ii) Pension lump sum payable on retirement
(iii) Other source of capital (e.g. inheritance from parents or sale of business)
History; LPA 1925 and LRA 2002
Useful to understand the evolution of mortgages.
What is a mortgage?
Political and social context: cornerstone of various gvt manifestos, especially conservative
policy. “In a property-owning democracy, the more people who own their homes the
better” – Conservative manifesto of the 50’s. “Turn generation rent into generation buy”.
Reality these days is that the chances of first time byers being able to afford house without
mortgages is very low. Inability for first time buyers to get onto housing ladder.
Why do UK governments promote owner occupation? Concept of social cohesion, to
enhance a sense of upwards mobility, we should all be aspiring to own our own homes.
Definition: A secured loan. Entered into between a mortgagee (lending party) mortgagor
(the borrower). Mortgage is a third-party interest, i.e. the mortgagee’s interest over the
mortgagor’s estate. You can have several mortgages on the same property (usually what
happens is people overextend themselves). You can also mortgage a freehold or a long
leasehold.
You have to ask: can you afford repayments? If you cannot and you thereby default on your
repayments, it becomes a question of priorities, i.e. which bank has priority over the other
(not necessarily ‘first mortgage’, it will depend on the registration. Important to recognise
who the other lenders are. Also question whether the current value of the property will
cover the mortgage. In instances where it doesn’t, it’s referred to as negative equity.
Repayment methods:
(1) Standard repayment options, mortgages are repaid by monthly payments of capital &
interest over 25 years (could be a tracker, fixed or variable rate). Distinction between
capital sum owed to them and the interest on that capital sum.
(2) Interest only repayments and then capital repaid in lump sum in certain conditions –
(i) Proceeds of life (on death)/endowment (at end of mortgage term) insurance
policy
(ii) Pension lump sum payable on retirement
(iii) Other source of capital (e.g. inheritance from parents or sale of business)
History; LPA 1925 and LRA 2002
Useful to understand the evolution of mortgages.
