Unilateral second charge on my mortgage

by Readers Question

13:19 PM, 3rd January 2017
About 2 years ago

Unilateral second charge on my mortgage

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Unilateral second charge on my mortgage

My current mortgage arrangement ends in June 2017 which means I have to repay my lender, C&G.
The property was my sole residence until nearly 2 years ago when I had to move nearer my family (for health reasons). As I could not sell the house for an acceptable price I decided to let to tenants for a couple of years – which is acceptable to C&G. trump cards

I assumed the only way I could repay the mortgage was by selling the property but, to my surprise, I discovered I could get a BTL mortgage. I would prefer this as I have since retired and the rent I get is essential.

The title deeds to my property show 2 charges, the first being C&G. The second one relates to a loan of £30k (16.7% of value) which was made by a private individual towards the deposit when I first purchased back in 2003. We had a loan agreement drawn up by a solicitor. Despite that, the individual made a unilateral charge on my property.

THE PROBLEM: My understanding is that any new BTL lender will want to have first charge on the property and this would involve asking the individual to come off temporarily while the BTL lender is registered after which note of the minor lender’s interest is returned to the title deeds.

Do I have any legal redress if he refuses to do so, thus preventing me from getting the BTL mortgage?

This is not an unlikely scenario because when I had to restructure my finances in 2008 the individual concerned did precisely that, insisting that he wanted his loan repaid. Then, as now, I do not have the money to repay his loan which is now over £50k with interest – which means I would be forced to sell the property – even though it would not be to my financial benefit.

The only reason he was forced to back down in 2008 is because the value of the property had dropped heavily and I was in negative equity; there was not enough to cover his loan after the mortgage had been paid. That is not the case today.

Does anyone know if he can force this sale? Can it really be acceptable as fair that he, with his minority interest of just 16.7 %, has this amount of control?

I would welcome any comments and/or suggestions of a solicitor that has experience of this sort of thing.

Sandra



Comments

Neil Patterson

13:27 PM, 3rd January 2017
About 2 years ago

Hi Sandra,

At the moment the security of the person who has the second charge ranks behind C&G, so if in the event you were to default or sell C&G would get their money first and then what was left would go towards paying the second charge.

However, if you were to pay off the C&G loan by remortgaging then the second charge would rank before the new lender which would not be acceptable to them unless the person with a second charge agreed to the new lender's security ranking before theirs as a first legal charge. However, not all lenders would be happy with this scenario even if it was agreed.

In effect the second legal charge could block your ability to remortgage, but if you are in doubt as to whether it should exist or not you should speak with your original solicitor that organised the loan.

Neil Harvey

22:46 PM, 3rd January 2017
About 2 years ago

Hi Sandra

Two questions/comments

1) i assume you are not paying the interest on the personal loan given you said its now 50k up from 30k? Is it still making money if you take that building interest into account? Over time this could build to an even more substantial sum.

2) could you get a big enough BTL mortgage to pay off the second charge loan? You may achieve a better interest rate than the 4% ish rate i estimate the second charge loan is costing

Man on Stilts

12:33 PM, 4th January 2017
About 2 years ago

Sandra,

Correct me if I am wrong, but it sounds like you may not want to pay back the 50k loan?

If the loan agreement was drawn up properly,then a sale of your property could be forced. Has your 50k lender not come forward with this suggestion?

Dylan Morris

13:27 PM, 4th January 2017
About 2 years ago

I think you're going to find it impossible to remortgage in the usual way as no lender as far as I know will be happy being secured by way of a second charge. They always require a first legal charge. There are some specialist lenders that do however lend by way of a secured loan (second charge) but the interest rates tend to be much higher than a first charge remortgage.
Sounds to me like you agreed with your "friend" an unsecured loan which you did not repay according to the written agreement. He/she then obtained a " charging order" on your property as you say this second charge was "unilateral". You need to check with a solicitor to be sure in your case, but usually the holder of a charging order can force the sale of the property.
Much better all round to remortgage if you have sufficient equity now and pay off the second charge. Other than that to remortgage in the usual way, you would need to get the second charge holder to postpone their interest, though probably unlikely they would want to do this as at they moment they have the upper hand. Perhaps look at a secured loan to repay C&G which although expensive might be better than selling the property or having the second charge holder force a sale.

H B

8:03 AM, 5th January 2017
About 2 years ago

"Can it really be acceptable as fair that he, with his minority interest of just 16.7 %, has this amount of control?"

To me, it does sound entirely fair. You would not have been able to buy the property without the loan and you are now benefiting from the income that derives from it.

If there is now sufficient equity to repay the loan if you sell, you should do.

Sandra Pomeroy

18:46 PM, 5th January 2017
About 2 years ago

Reply to the comment left by "Neil Patterson" at "03/01/2017 - 13:27":

Thank you for your reply. Yes contacting the original solicitor might be a way to go. I only want a lawyer to write a letter or two. The original agreement goes back to 2003 - I hope they have decent archives.

Sandra Pomeroy

19:17 PM, 5th January 2017
About 2 years ago

Reply to the comment left by "Neil Harvey" at "03/01/2017 - 22:46":

Thank you for your comments.

1. The loan was for £30k on a £180k house purchase (which was for 11 years my sole residential home). This gave the lender a 16.7% share of the house. It was agreed that when I came to sell, the lender would be repaid 16.7% of the sale price. The original loan was in 2003 but when I tried to sell in 2008 I wasn't able to as the price had dropped significantly and I was in negative equity. There was not enough to cover the lender's £30k.
Things have improved since then and it was recently valued at around £320k - 16.7% of which = £53.4K which is probably more than the lender would have got if he'd left in a building society since 2003, I think(?)

2. I was ready to sell the place for +/- £320k out of which I'd have to repay the mortgage + the loan (now £53k) = £245k, leaving me around £75k which is better than a poke in the eye..... I was informed that a BTL may be available but up to a maximum of £210k which could clear the mortgage but wouldn't be enough to repay the minority lender £53k.
So I guess I'll be having to sell, even though the income is more useful as I had to take unexpectedly early retirement.

Sandra Pomeroy

19:46 PM, 5th January 2017
About 2 years ago

Reply to the comment left by "Man on Stilts" at "04/01/2017 - 12:33":

To correct your assumption: No, I am not the sort of person to renege on a debt. I think my query pivots on when, not if, I sell the property and repay this ever-growing loan.

in 2003 I was loaned £30k towards purchase of a £180k property - so the loan represents a 16.7% interest in the house. The agreement is that when I finally sell up, the lender will be repaid 16.7% of the current sale price. It was recently valued at £320k so if I found an actual buyer tomorrow for that price I would have to repay £53.4k for the £30k loan.

The minority lender had pushed for repayment in 2008. Unfortunately, the recession had taken hold by then and I was in negative equity - barely able to cover repayment of the mortgage lender, let alone find another £30k - and of course I would have been left without enough to pay the estate agent....

Btw since 2003 until 2015 the property in question was my sole residence. From 2014 onwards I developed health problems and was forced into early retirement. I needed to be near my family and tried to sell up but the price was still not enough so I decided to let the house out temporarily and the rent I get from my tenants pays the rent I have to pay on my current private-rented flat.

My current mortgage deal ends in June 2017 so I could, and probably will, sell up if I have no other option. A BTL mortgage would have provided an essential source of income since my enforced retirement

Sandra Pomeroy

20:16 PM, 5th January 2017
About 2 years ago

Reply to the comment left by "Dylan Morris" at "04/01/2017 - 13:27":

Thank you for getting back.
I must just correct your assumption about the loan. We had an agreement drawn up by solicitors in 2003. I suppose at that point it was an unsecured loan. As this person was a friend we were fairly laid back about it and there was an understanding between us that we would reappraise everything "in about 5 years time" when I would probably sell - house prices in this area were going up about £1,000 a month, though I felt that was unsustainable.

Come 2008 and I, along with millions of others, found myself in negative equity due to the recession. So being able to repay his £30k was impossible - for the foreseeable future.
I had reason to obtain a copy of the title deeds at this time and was surprised to see that my "friend" had registered his interest unilaterally in the property - back in 2005!!!! Which was several years before we'd agreed to take stock of the situation.

My existing mortgage arrangement comes to an end in June this year so I will probably have to sell up to repay it. It was recently valued at £320K so the minority lenders 16.7% interest in my home has increased from £30k to £53.4k.
I would need a mortgage of +/- £250k to clear both current debts but I've been advised I wouldn't get more than +/- £210k

H B

21:17 PM, 5th January 2017
About 2 years ago

To work out the sums, you can sell for £320k, perhaps deducting 1% for estate agents, leaving £317k. You owe your friend £53k, leaving a net of £264k before you repay your mortgage.

Back in 2003 it was worth £180k, so even if you had put in zero deposit, the largest loan you could have needed was £150k, given your friend's loan, but even if you had put only £10k in, the mortgage would only have been £140k.

To me, that suggests that you should have equity of £124k, not £76k, so approx. £50k is missing.

You also state that "I was ready to sell the place for +/- £320k out of which I’d have to repay the mortgage + the loan (now £53k) = £245k, leaving me around £75k which is better than a poke in the eye"

This suggests that the mortgage is £192k (£245k - £53k), which is about £50k more than I would have expected.

I would guess that the only reason that you have a mortgage so large is that you have remortgaged at some point in between. Now, you may well have needed that money for some reason, but it is not much help to your friend who is not getting any benefit on his £30k lent in 2003. And given that you may have been remortgaging and your unwillingness to repay your friend, it is perhaps very wise that he put a charge on the property.

The other thing that perplexes me is the mortgage term - 2003 to 2017 - 14 years. Isn't that an unusual term for a mortgage?

Finally, given the size of the mortgage, it sounds as though you signed up for an interest only mortgage. You may find that the bank is very sympathetic about it as long as you keep repaying the mortgage. But, this would only be the case if it were owner-occupied rather than consent-to-let.

Finally, if you do sell up and get your £74k, surely you can buy another property, say for £200k. It may not generate quite as much income as the current one, but it is still income.

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