Every way to borrow against property
Standard mortgages, buy to let, bridging, development finance, first and second charges, title splits, gifted deposits, joint borrower sole proprietor, equity release, and the line between regulated and unregulated lending, with the Acts and the rules read on Homebinding.
What lenders lend, on what, to whom, and under which rules
Every loan against property is one of a small number of shapes. What changes is who the borrower is (a person or a company), what the property is for (the borrower's home, a let, a business, a building site), which charge the lender takes (first or second), and how long the money is out. Those four things decide which lender will look at it, what it costs, and whether the law treats it as a regulated mortgage with the borrower's protections attached, or as a commercial arrangement between two parties who are assumed to know what they are doing.
This page sets out each shape, what the lender will ask for, and what the lender may and may not do afterwards. It is written for buyers, owners and small developers. It is not advice: a mortgage broker or lender authorised by the Financial Conduct Authority advises on which loan suits you, and Homebinding is not authorised to do that. What it can do is show you the whole board and the rules of the game before you sit down.
The line, and why it matters
Lending is a regulated activity. Under section 19 of the Financial Services and Markets Act 2000 nobody may carry on a regulated activity in the United Kingdom unless authorised or exempt, and an agreement made by an unauthorised lender is unenforceable against the borrower without a court order. Which loans are regulated is set by the Regulated Activities Order 2001. Article 61 defines a regulated mortgage contract: a loan to an individual (or to trustees), secured by a mortgage on land, where at least 40 percent of the land is used, or is intended to be used, as a dwelling by the borrower or by a member of the borrower's family. Since 21 March 2016 the Mortgage Credit Directive Order 2015 has brought second charge loans on a home into the same regime, and created a registered category of consumer buy to let for the accidental landlord who did not set out to run a business.
A regulated mortgage carries the Financial Conduct Authority's conduct rules, the Mortgages and Home Finance sourcebook known as MCOB: affordability assessed on income and outgoings, advice given and recorded, a European Standardised Information Sheet before you commit, a reflection period, rules on arrears and on how a lender may treat a borrower in difficulty, and the right to complain to the Financial Ombudsman Service.
Outside the line sit loans to companies, loans for business purposes, buy to let to a landlord acting by way of business, bridging on a property the borrower does not live in, development finance, and commercial mortgages. These are unregulated: the lender is not bound by MCOB, the borrower is taken to be acting commercially, the terms are what the parties agree, and the protections are those of the general law: the Consumer Credit Act 1974 where it still applies and its unfair relationship provisions in sections 140A to 140C, the law of mortgages in the Law of Property Act 1925, and the equity of redemption that no lender can exclude.
Two consequences follow. An unregulated lender can move faster, lend on things a regulated lender cannot, and price for risk, which is why bridging and development money exist. And a borrower on an unregulated loan has fewer places to go when it goes wrong, so the documents must be read, the exit must be real, and the personal guarantee must be understood before it is signed. Regulated does not mean cheap and unregulated does not mean dangerous; it means the rules are different, and you should know which set you are under.
Each way to borrow, what it is for, and what the lender will ask
| Loan | What it is | Regulated? | What the lender asks for |
|---|---|---|---|
| Residential mortgage | A first legal charge on the home you live in, repaid over up to 40 years by capital and interest or interest only with a repayment plan. Fixed, tracker, discounted or standard variable rate; loan to value from 60 to 95 percent; the loan to income multiple set by the lender under the Bank of England's rules. | Yes | Income evidence, bank statements, credit history, the deposit and its source, identity, a valuation, and a solicitor to certify title |
| Buy to let | A mortgage on a property you let. Assessed on the rent: lenders apply an interest cover ratio, commonly 125 to 145 percent of the mortgage interest at a stressed rate, under the Prudential Regulation Authority's underwriting standards, with a portfolio landlord test at four or more mortgaged lets. | Not usually; consumer buy to let is registered | Rent evidence or a letting agent's letter, personal income as a floor, a deposit of about 25 percent, the tenancy agreement, and an EPC of E or better |
| Limited company buy to let | The same loan to a special purpose company that owns the let, so the interest is a deductible expense of the company. Lenders take personal guarantees from the directors and a debenture over the company. | No | The company's articles restricted to property, the directors' personal guarantees, independent legal advice on the guarantee |
| Second charge | A further loan secured behind the first mortgage, ranking second on the register. Used to raise money without disturbing a cheap first mortgage, or where the first lender will not lend more. The first lender's consent is usually needed and the second lender's rights are subject to the first. | Yes, on a home | The first lender's consent, equity after the first charge, affordability on both loans together |
| Bridging loan | Short term money, typically up to twelve months, secured by a first or second charge, with interest rolled up or retained and repaid at the end from a sale or a refinance, the exit. Used to buy before selling, to buy at auction inside 28 days, to buy a property a mortgage lender will not touch until it is habitable, or to fund light works. | Only where it is on your own home | The exit, evidenced; a valuation; the works schedule where there are works; a personal guarantee where the borrower is a company |
| Development finance | A loan to buy or refinance a site and to build, drawn in stages against a monitoring surveyor's certificates as work is done. Sized on the gross development value (commonly up to 60 to 70 percent of GDV) and on cost (up to 85 to 90 percent of cost), with the developer's equity in first. Mezzanine and equity investors sit behind the senior lender. | No | Planning permission, the build contract and programme, the appraisal, the professional team, the developer's track record, personal guarantees, a debenture, and an exit by sale or by refinance |
| Commercial mortgage | A term loan on a shop, office, workshop, farm or mixed use building, assessed on the rent or on the borrower's business accounts. | No, unless 40 percent or more is the borrower's home | Three years' accounts or the leases, a valuation on the commercial basis, and often a personal guarantee |
| Self build mortgage | A mortgage that releases money in stages as the house goes up, in arrears against a valuer's inspection or in advance against costs. | Yes | Planning permission, warranty or professional consultant's certificate, the build cost, the stage schedule |
| Lifetime mortgage and equity release | A loan to an older owner with no monthly payments, repaid with rolled up interest when the home is sold on death or a move into care. Providers who follow the Equity Release Council standards give a no negative equity guarantee. | Yes, with extra rules | Age, the property, independent legal advice, and advice from a qualified equity release adviser |
| Islamic home finance | Purchase plans without interest: the bank buys and the customer buys back by instalments (murabaha), or the bank owns and the customer rents while buying in shares (ijara and diminishing musharaka). Stamp Duty Land Tax relief keeps the tax the same as a mortgage. | Yes | As for a residential mortgage |
| Auction finance | Bridging arranged before the auction so that the 10 percent on the day and completion within 28 days can be met. | As bridging | The legal pack read by your solicitor, the valuation, the exit |
Gifted deposits, gifted equity, and joint borrower sole proprietor
Gifted deposit
Money given by a relative towards the purchase. Every lender wants a signed letter from the giver saying that it is a gift, that it is not repayable, and that the giver will have no interest in the property, together with identity and source of funds checks on the giver under the Money Laundering Regulations 2017. For the giver the gift is a potentially exempt transfer under the Inheritance Tax Act 1984: it falls out of the estate after seven years, and £3,000 a year is exempt outright. Your solicitor reports the gift to the lender; hiding it is mortgage fraud.
Gifted equity
A sale by a relative below market value, the difference standing as the buyer's deposit. Lenders that accept a concessionary purchase lend against the market value with the discount as the equity. The tax on the purchase is charged on the price paid, not the value, unless the buyer is a company connected to the seller. The seller's solicitor and the buyer's solicitor must be separate, and the seller usually signs a declaration that they will not live there after completion.
Joint borrower, sole proprietor
A parent joins the mortgage to add their income to the affordability assessment but is not on the title, so the higher rate of Stamp Duty Land Tax for an additional property does not bite and the child is the sole owner. The parent is liable for the whole loan and takes independent legal advice before signing. Guarantor mortgages do the same with a charge over the parent's savings or home instead.
Help from the state: the Lifetime ISA adds 25 percent to savings of up to £4,000 a year for a first home costing up to £450,000; shared ownership lets a buyer own a share and rent the rest from a housing association; First Homes sells new homes to first time buyers at a discount of at least 30 percent with the discount passed on; Right to Buy gives council tenants a discount. Each has its own rules and each lender has its own list of which it accepts.
First charges, second charges, and splitting a title
How a charge works
A mortgage in England and Wales is a charge by way of legal mortgage under section 87 of the Law of Property Act 1925, registered against the title in the charges register under the Land Registration Act 2002. Priority between charges runs in order of registration, so the first charge is paid first from a sale and the second lender takes what is left. A lender cannot register a second charge without knowing the first is there, and most first mortgages forbid a second charge without consent. The lender's remedies are the statutory ones: the power of sale under section 101, which arises when the money is due and becomes exercisable under section 103 after three months' notice, two months' interest in arrear, or another breach; the power to appoint a receiver under section 109, who collects rent and sells without the lender taking possession; and possession itself.
Possession of a home needs a court order, and section 36 of the Administration of Justice Act 1970 lets the court adjourn or suspend it where the borrower can pay the arrears within a reasonable period. A regulated lender must follow the pre-action protocol and MCOB before it issues. A tenant of a borrower whose lender takes possession can ask the court for up to two months' postponement under the Mortgage Repossessions (Protection of Tenants etc.) Act 2010. In Scotland the equivalent is the standard security under the Conveyancing and Feudal Reform (Scotland) Act 1970, with the pre-action requirements of the Home Owner and Debtor Protection (Scotland) Act 2010.
Title splits
A title split divides one registered title into several so that each part can be sold, let or mortgaged on its own: a house into flats, a farm into the farmhouse and the land, a terrace bought whole and sold as houses, a building with a shop below and a flat above. For freehold parts the owner transfers each part out of the parent title by a transfer of part (form TP1) and HM Land Registry opens a new title for it under the Land Registration Rules 2003. For flats the owner grants long leases of each flat, keeping the freehold, and each lease is registered with its own title; since 30 June 2022 a new residential long lease may reserve only a peppercorn ground rent under the Leasehold Reform (Ground Rent) Act 2022.
Three things stand in the way and must be dealt with first. The existing lender: no part can be transferred or let on a long lease free of the charge without the lender's release of that part or its consent, and lenders charge for it or require repayment from the proceeds. Planning: dividing a house into two or more separate dwellings is development under section 55(3)(a) of the Town and Country Planning Act 1990 and needs permission, and building regulations apply to the works. Rights: each new part needs the rights of way, services and support it will rely on, and the covenants that will protect the others, written into the transfer or lease. Done properly a split turns one asset into several that lend and sell independently; done badly it produces flats that no lender will touch.
The borrower's position, in plain terms
| The lender may | The lender may not |
|---|---|
| Refuse to lend, and need not give a reason beyond the statutory ones | Lend on a regulated mortgage without authorisation, or through an unauthorised broker |
| Require a valuation by its own panel valuer, at your cost, and rely on it rather than the price you paid | Charge you for a valuation it does not obtain |
| Ask for the source of every pound of the deposit | Take a deposit it has reason to believe is a disguised loan and treat it as a gift |
| Demand a personal guarantee from company directors and independent legal advice on it | Enforce a guarantee obtained by undue influence over a spouse or partner who had no independent advice |
| Set the interest rate, fees and early repayment charges stated in the offer | Vary the terms of a regulated mortgage unfairly, or apply charges that are not in the agreement |
| Appoint a receiver over a let property in default and take the rent | Take possession of a home without a court order, or evict a tenant without the process the 2010 Act gives |
| Sell after default, taking reasonable care to get the best price reasonably obtainable | Sell to itself, or sell carelessly at an undervalue and charge you the shortfall |
| Pursue a shortfall after sale, for six years from the date the money fell due, twelve where the claim is on the deed | Keep any surplus from the sale: it belongs to the next chargee, then to you |
| Insist on buildings insurance and life cover where the offer requires it | Require you to buy insurance from the lender itself as a condition of the loan |
| Report arrears to the credit reference agencies | Treat a borrower in arrears without the forbearance MCOB requires, on a regulated loan |
Every line above has a rule behind it; the Acts are linked in the text and the FCA's rulebook is described on the Financial Conduct Authority page. Where a lender breaks a regulated rule the complaint goes to the lender first and then to the ombudsman; where an unregulated lender behaves badly the remedy is in the courts, and it is the loan agreement that decides most of it.
Where the rules differ
Scotland
The security is a standard security rather than a charge, under the Conveyancing and Feudal Reform (Scotland) Act 1970. A lender must serve a calling up notice and satisfy the pre-action requirements in the Home Owner and Debtor Protection (Scotland) Act 2010 before the sheriff will grant repossession of a home. Regulation of the lending itself is the same UK regime.
Northern Ireland
Charges are registered at the Land Registry of Northern Ireland or in the Registry of Deeds under the Land Registration Act (Northern Ireland) 1970 and the Registration of Deeds Act (Northern Ireland) 1970. Repossession runs through the Chancery Division with its own pre-action protocol. Stamp Duty Land Tax applies as in England.
Ireland
Housing loans are governed by the Consumer Credit Act 1995 and the Central Bank's Consumer Protection Code, and the Central Bank's mortgage measures cap loans to income and loan to value: a first time buyer may borrow up to four times income at up to 90 percent of value, other buyers 3.5 times at 90 percent, and buy to let investors up to 70 percent. The security is a charge registered with Tailte Éireann under the Land and Conveyancing Law Reform Act 2009.
Today's rates and the tax on buying How the sale works Valuations and surveys
This page describes the law and the market as they stand; it is not advice on any loan. Homebinding is not authorised by the Financial Conduct Authority and does not arrange or advise on mortgages; an authorised broker or lender does that. Figures such as loan to value and interest cover ratios are the common practice of lenders, not statutory limits, and each lender publishes its own.
