Mortgage law & policy

In English property law, what does a 'mortgage' fundamentally create for the lender?

• A Outright ownership of the property transferred to the lender
• B A charge over the property as security for the loan ✓
• C A right for the lender to occupy the property immediately
• D A right to sell the property at any time without process

Answer: A mortgage creates a charge (security) over the property; legal ownership remains with the borrower. The lender's rights, including possession and sale, are subject to legal process and protections.

What is the term for the borrower's right to redeem the mortgage and have the charge removed once the debt is repaid?

• A The equity of redemption ✓
• B The right of foreclosure
• C The covenant of quiet enjoyment
• D The deed of priority

Answer: The equity of redemption is the borrower's right to clear the debt and free the property from the lender's charge. It cannot be unfairly fettered (no 'clog' on the equity of redemption).

What is a 'first legal charge' on a property?

• A A charge that ranks behind all other lenders
• B The primary security interest that takes priority over later charges ✓
• C A charge that applies only to leasehold property
• D A charge held by the local authority for unpaid council tax

Answer: A first legal charge ranks ahead of subsequent (second and later) charges, giving that lender first call on the sale proceeds. Most main residential mortgages are secured by a first legal charge.

Which form of land ownership grants the owner the property and the land it stands on indefinitely?

• A Leasehold
• B Freehold ✓
• C Commonhold tenancy
• D Assured shorthold tenancy

Answer: Freehold ownership is held indefinitely with no time limit. Leasehold grants the right to occupy for a fixed term, after which it reverts to the freeholder unless extended.

A key concern for a lender when a property is leasehold is:

• A The colour of the front door
• B Whether the remaining lease term is long enough to provide adequate security ✓
• C The borrower's choice of furniture
• D The name of the previous owner

Answer: Lenders are concerned with the unexpired lease term because a short lease reduces the property's value and marketability, weakening the security. Many lenders set minimum acceptable lease lengths.

What is the difference between joint tenants and tenants in common when two people own a property?

• A Joint tenants own distinct shares that pass under their will; tenants in common own the whole jointly with survivorship
• B Joint tenants own the whole jointly with survivorship; tenants in common own distinct shares that can be left by will ✓
• C There is no legal difference between the two
• D Only tenants in common can take out a mortgage

Answer: Under a joint tenancy the survivor automatically inherits the whole (right of survivorship). Tenants in common hold distinct, definable shares that can be passed on by will.