This article discusses about the different secured loan options available to the buyer. When the buyer has not made any arrangements for the purchase amount before contacting his solicitor, he may be advised on the different options available. It is possible that the conveyancing solicitor may have an arrangement with a particular lender for introduction of clients. Such arrangements should comply with the SRA Code of Conduct.
The different sources of mortgage available to buyers in England and Wales include:
1) Banks
2) Building Societies
3) The Client’s Employer
4) A Private Mortgage
5) Finance Houses
Building Societies and Banks:
Building societies and banks form a major chunk of the mortgage market. The terms of credit offered by them are almost similar; both offer long term loans at competitive interest rates.
The client’s employer
Many large corporate entities especially banks offer mortgages at interest rates that are very low compared to the open market. Thus, employees can borrow substantial amount of money at lower interest rates.
When a loan is obtained at such a low rate of interest, the HMRC considers the employee to be ‘in benefit of a kind that is taxable for a higher paid employee’. But even with such a tax, the loan is considered viable when compared to the rates in the open market.
The only disadvantage with this type of loan is that employees would find it difficult to change companies after contracting a loan as this would require withdrawal of the concessionary rates and a huge increase in the monthly mortgage repayments.
Private mortgage
It is possible that sometimes a loan may be obtained from a relative or from a private trust fund. The terms of such a loan may be arranged by the parties involved and the advice offered by the solicitor may vary from case to case. Since, the loan is between related parties, a possible conflict of interest can occur between the lender and the borrower. Therefore, the same solicitor should not act for both the lender & the borrower.
Finance houses
Loans from finance houses are not viable for purchase of a property as their terms are often less generous than those offered by other sources of finance. The interest rates may be too high and loans may be available only for a short term. Nevertheless, they are approached, usually for a second loan to finance home improvement projects etc. However, the second mortgages obtained from finance houses are subject to provisions contained in S58 of the Consumer Credit Act of 1974.
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