Mortgages Borrower – The individual or en ty that takes out a loan (such as a mortgage) and agrees
to repay it, usually with interest, over a specified period. The borrower provides security (e.g.,
property) to the lender as protec on in case of non-payment. Lender – The financial ins tu on or
individual (e.g., a bank or building society) that provides the loan to the borrower. The lender holds a
legal right over the secured property un l the loan is fully repaid.
What is a mortgage? It’s a Form of security over property for payment of a debt. Security = Ensuring
performance of an obligation beyond recourse against debtor.
Why Use a Mortgage? 1. Financing a House Purchase or Improvement – Spreading cost over time
2. Securing Other Borrowing or Indebtedness – Using property as collateral for other debts
3. Equity Release – Unlocking value of property for other financial needs
Types of Mortgages - Repayment Mortgage – Borrower repays both the capital (original loan amount)
and interest over time, fully paying off the loan by the end of the term.
2. Endowment Mortgage – Interest-only mortgage where the capital is repaid at the end of the term
using an investment (e.g., endowment policy).
3. Interest-Only Mortgage – Borrower pays only the interest during the term and repays the capital at
the end through savings or other funds.
4. Fixed-Rate Mortgage – Interest rate remains fixed for a set period, providing certainty over
repayments.
5. Commercial Mortgage – Used to purchase business property, with terms and rates varying based
on the business and property type.
Alternative Forms of Mortgage 1. Welsh Mortgage – Historical mortgage where lender took
possession but allowed borrower to stay until repayment.
2. Personal Security – Loan secured against personal guarantees rather than property, allowing
the lender to claim personal assets in case of default.
3. Islamic Mortgage – Sharia-compliant structure that avoids interest through alternative
methods like leasing or profit-sharing.
4. Shared Ownership – Borrower buys a share of the property and pays rent on the remaining
portion, with the option to increase their share.
5. Instalment Contract – Buyer pays for property in instalments directly to the seller, gaining
ownership after full payment.
6. Hire Purchase – Similar to an instalment contract but involves a finance company; ownership
transfers after final payment.
Definition of Capital - Capital – The original loan amount borrowed, which the borrower is required
to repay in addition to any interest.
,Language of Mortgages
1. Owner-Occupier – A person who acquires a house to live in, subject to a mortgage.
2. Mortgagor – The borrower who grants the mortgage over their property.
3. Mortgagee – The lender who benefits from the security provided by the mortgage.
4. Foreclosure – The process of terminating the mortgagor’s rights, making the transfer of ownership
to the mortgagee permanent.
Equity of Redemption= The right of a mortgagor (borrower) to reclaim full ownership of their
property by repaying the mortgage debt in full, even after default, before the lender enforces their
security (e.g., by foreclosure or sale).
1. Definition of Equity – The value of the property that belongs to the borrower after deducting the
outstanding mortgage debt. Summary – Right of the borrower to benefit from the mortgaged
property once the mortgage is repaid.
3. Right to Redeem Right to repay the mortgage and remove the lender’s claim over the
Elements: – property. Right to occupy and use the property while the mortgage
Right to Use and – exists.
Enjoy
• Right to Benefit from Value Increase – Borrower gains from any
increase in property value.
• Negative Equity – If the property’s value drops below the outstanding loan, the borrower bears the
financial loss. Example:Alex buys a house with a mortgage of £250,000. After a market downturn,
the property’s value falls to £200,000. If Alex tries to sell, they will still owe the lender £50,000 after
the sale proceeds, as the outstanding mortgage is higher than the property’s value.
Mortgages and Charges : Mortgage – A conveyance (transferring ownership) of an interest in land,
typically as security for a loan, with a (condition) for redemption. This means the borrower can
reclaim ownership by repaying the loan. Charge – A right of security similar to a mortgage, but it
does not convey a possessory interest in land. The borrower retains ownership, but the lender holds
a charge over the property until the debt is repaid. Difference – Mortgages and charges are
technically different but often used interchangeably.
2. Legal LPA 1925 s 205(xvi) – A Definitions: cludes any charge or lien on
property to “mortgage” in secure
money or LRA 2002 s – money’s worth. A “charge” means any
mortgage, charge, or lien for securing money or money’s worth.
132
How is a Mortgage Created? Power to Create Mortgages – Land Registration Act 2002, s 23(1): The
owner of a registered estate has the following powers: a) The power to make any legal change to the
ownership or rights over the property, except for creating a mortgage by transferring the property to
a tenant or by further transferring a lease to a subtenant. b) The power to charge the estate with the
payment of money, which creates a mortgage-like security over the property. In simple terms, a
mortgage is created when the property owner uses their legal right to secure a debt by agreeing with
a lender.
, How is a Legal Charge Created? 1 Requires a Deed LPA 1925 s 52: To create a legal charge, it must be
executed by a deed, a formal legal document that must be signed, sealed, and delivered.
2. Completion by Registration - LRA 2002 s 27(1): Certain dispositions must be completed by
registration to take effect at law, including the creation of a legal charge.
3. Grant of a Legal Charge - LRA 2002 s 27(2)(f): The grant of a legal charge must be registered
in the Land Registry to have legal effect and be enforceable at law.
Operation of a Legal Charge - Law of Property Act 1925, s 87(1): When a legal mortgage of land is
created by a charge through a deed (expressed as a legal mortgage), the lender (mortgagee) is
granted the same protections, powers, and remedies as if: a) In the case of a mortgage of an estate
in fee simple (full ownership), the mortgage were a 3,000-year term created in favour of the lender,
with no restrictions on the use of the property (no impeachment of waste).In simple terms, this
section ensures that the lender receives same rights to those of a long-term owner of the
property.(same rule for lenders despite the length of term)
2. Creation of a Legal Mortgage - A legal mortgage of registered land can only be created by means of
a registered charge. However, a registered charge operates in the same way as if it had been created
as an oldfashioned mortgage, involving the transfer of a possessory interest in land with a proviso
(condition) for redemption (allowing the borrower to reclaim ownership by repaying the debt).
Equitable Mortgages - Contract to Create a Mortgage Treated as Effective in Equity - A contract to
create a
mortgage is effective in equity, even if it does not meet the requirements for a legal mortgage.
Contract Requirements: The contract must satisfy the normal requirement of being made in writing,
as per the Law of Property (Miscellaneous Provisions) Act 1989 s 2.
United Bank of Kuwait v Sahib [1997] Ch 107 - Case Facts: Sahib entered into an agreement with
United Bank of Kuwait to create a mortgage but failed to execute the formal deed. Held in favour of:
United Bank of Kuwait because the contract satisfied the written requirement under s 2 of the
LP(MP)A 1989 and was enforceable in equity despite the absence of a deed.
2. Attempt to Create Legal Mortgage by Person with Only an Equitable Interest An attempt to
create a legal mortgage by someone with only an equitable interest in property is effective only to
the extent of the person’s equitable interest.
First National Securities v Hegerty [1985] QB 850 Case Facts: Hegerty attempted to create a legal
mortgage of property in which he only had an equitable interest, but the mortgage could only take
effect on his equitable share. Held in favour of: First National Securities because Hegerty could not
create a legal mortgage due to his lack of legal ownership, and the mortgage was enforceable only in
equity.
3. Failure to Register Means Mortgage Can Only Take Effect in Equity • If a legal mortgage is not
registered (when required), it will only take effect in equity, not at law.
Contract in Mortgages - Borrower’s Liability - The borrower is always liable to repay the loan, even if:
• The property is repossessed and sold. The mortgagor abandons the property to the mortgagee.
to repay it, usually with interest, over a specified period. The borrower provides security (e.g.,
property) to the lender as protec on in case of non-payment. Lender – The financial ins tu on or
individual (e.g., a bank or building society) that provides the loan to the borrower. The lender holds a
legal right over the secured property un l the loan is fully repaid.
What is a mortgage? It’s a Form of security over property for payment of a debt. Security = Ensuring
performance of an obligation beyond recourse against debtor.
Why Use a Mortgage? 1. Financing a House Purchase or Improvement – Spreading cost over time
2. Securing Other Borrowing or Indebtedness – Using property as collateral for other debts
3. Equity Release – Unlocking value of property for other financial needs
Types of Mortgages - Repayment Mortgage – Borrower repays both the capital (original loan amount)
and interest over time, fully paying off the loan by the end of the term.
2. Endowment Mortgage – Interest-only mortgage where the capital is repaid at the end of the term
using an investment (e.g., endowment policy).
3. Interest-Only Mortgage – Borrower pays only the interest during the term and repays the capital at
the end through savings or other funds.
4. Fixed-Rate Mortgage – Interest rate remains fixed for a set period, providing certainty over
repayments.
5. Commercial Mortgage – Used to purchase business property, with terms and rates varying based
on the business and property type.
Alternative Forms of Mortgage 1. Welsh Mortgage – Historical mortgage where lender took
possession but allowed borrower to stay until repayment.
2. Personal Security – Loan secured against personal guarantees rather than property, allowing
the lender to claim personal assets in case of default.
3. Islamic Mortgage – Sharia-compliant structure that avoids interest through alternative
methods like leasing or profit-sharing.
4. Shared Ownership – Borrower buys a share of the property and pays rent on the remaining
portion, with the option to increase their share.
5. Instalment Contract – Buyer pays for property in instalments directly to the seller, gaining
ownership after full payment.
6. Hire Purchase – Similar to an instalment contract but involves a finance company; ownership
transfers after final payment.
Definition of Capital - Capital – The original loan amount borrowed, which the borrower is required
to repay in addition to any interest.
,Language of Mortgages
1. Owner-Occupier – A person who acquires a house to live in, subject to a mortgage.
2. Mortgagor – The borrower who grants the mortgage over their property.
3. Mortgagee – The lender who benefits from the security provided by the mortgage.
4. Foreclosure – The process of terminating the mortgagor’s rights, making the transfer of ownership
to the mortgagee permanent.
Equity of Redemption= The right of a mortgagor (borrower) to reclaim full ownership of their
property by repaying the mortgage debt in full, even after default, before the lender enforces their
security (e.g., by foreclosure or sale).
1. Definition of Equity – The value of the property that belongs to the borrower after deducting the
outstanding mortgage debt. Summary – Right of the borrower to benefit from the mortgaged
property once the mortgage is repaid.
3. Right to Redeem Right to repay the mortgage and remove the lender’s claim over the
Elements: – property. Right to occupy and use the property while the mortgage
Right to Use and – exists.
Enjoy
• Right to Benefit from Value Increase – Borrower gains from any
increase in property value.
• Negative Equity – If the property’s value drops below the outstanding loan, the borrower bears the
financial loss. Example:Alex buys a house with a mortgage of £250,000. After a market downturn,
the property’s value falls to £200,000. If Alex tries to sell, they will still owe the lender £50,000 after
the sale proceeds, as the outstanding mortgage is higher than the property’s value.
Mortgages and Charges : Mortgage – A conveyance (transferring ownership) of an interest in land,
typically as security for a loan, with a (condition) for redemption. This means the borrower can
reclaim ownership by repaying the loan. Charge – A right of security similar to a mortgage, but it
does not convey a possessory interest in land. The borrower retains ownership, but the lender holds
a charge over the property until the debt is repaid. Difference – Mortgages and charges are
technically different but often used interchangeably.
2. Legal LPA 1925 s 205(xvi) – A Definitions: cludes any charge or lien on
property to “mortgage” in secure
money or LRA 2002 s – money’s worth. A “charge” means any
mortgage, charge, or lien for securing money or money’s worth.
132
How is a Mortgage Created? Power to Create Mortgages – Land Registration Act 2002, s 23(1): The
owner of a registered estate has the following powers: a) The power to make any legal change to the
ownership or rights over the property, except for creating a mortgage by transferring the property to
a tenant or by further transferring a lease to a subtenant. b) The power to charge the estate with the
payment of money, which creates a mortgage-like security over the property. In simple terms, a
mortgage is created when the property owner uses their legal right to secure a debt by agreeing with
a lender.
, How is a Legal Charge Created? 1 Requires a Deed LPA 1925 s 52: To create a legal charge, it must be
executed by a deed, a formal legal document that must be signed, sealed, and delivered.
2. Completion by Registration - LRA 2002 s 27(1): Certain dispositions must be completed by
registration to take effect at law, including the creation of a legal charge.
3. Grant of a Legal Charge - LRA 2002 s 27(2)(f): The grant of a legal charge must be registered
in the Land Registry to have legal effect and be enforceable at law.
Operation of a Legal Charge - Law of Property Act 1925, s 87(1): When a legal mortgage of land is
created by a charge through a deed (expressed as a legal mortgage), the lender (mortgagee) is
granted the same protections, powers, and remedies as if: a) In the case of a mortgage of an estate
in fee simple (full ownership), the mortgage were a 3,000-year term created in favour of the lender,
with no restrictions on the use of the property (no impeachment of waste).In simple terms, this
section ensures that the lender receives same rights to those of a long-term owner of the
property.(same rule for lenders despite the length of term)
2. Creation of a Legal Mortgage - A legal mortgage of registered land can only be created by means of
a registered charge. However, a registered charge operates in the same way as if it had been created
as an oldfashioned mortgage, involving the transfer of a possessory interest in land with a proviso
(condition) for redemption (allowing the borrower to reclaim ownership by repaying the debt).
Equitable Mortgages - Contract to Create a Mortgage Treated as Effective in Equity - A contract to
create a
mortgage is effective in equity, even if it does not meet the requirements for a legal mortgage.
Contract Requirements: The contract must satisfy the normal requirement of being made in writing,
as per the Law of Property (Miscellaneous Provisions) Act 1989 s 2.
United Bank of Kuwait v Sahib [1997] Ch 107 - Case Facts: Sahib entered into an agreement with
United Bank of Kuwait to create a mortgage but failed to execute the formal deed. Held in favour of:
United Bank of Kuwait because the contract satisfied the written requirement under s 2 of the
LP(MP)A 1989 and was enforceable in equity despite the absence of a deed.
2. Attempt to Create Legal Mortgage by Person with Only an Equitable Interest An attempt to
create a legal mortgage by someone with only an equitable interest in property is effective only to
the extent of the person’s equitable interest.
First National Securities v Hegerty [1985] QB 850 Case Facts: Hegerty attempted to create a legal
mortgage of property in which he only had an equitable interest, but the mortgage could only take
effect on his equitable share. Held in favour of: First National Securities because Hegerty could not
create a legal mortgage due to his lack of legal ownership, and the mortgage was enforceable only in
equity.
3. Failure to Register Means Mortgage Can Only Take Effect in Equity • If a legal mortgage is not
registered (when required), it will only take effect in equity, not at law.
Contract in Mortgages - Borrower’s Liability - The borrower is always liable to repay the loan, even if:
• The property is repossessed and sold. The mortgagor abandons the property to the mortgagee.
