15.3 Finance and Acting for a Lender

A freehold purchase is a land transaction and a money transaction at the same time. FLK2 tests sources of finance, types of mortgage, the lender's requirements, and the purpose of a certificate of title. This independent OpenExamPrep section is written for that heading. OpenExamPrep is not a lender and does not issue mortgage offers. In a real file the offer, the Handbook, and the SRA Codes decide what you can certify.

Sources of finance

Name the money before you fall in love with the title.

Shared-ownership and other scheme titles have extra landlord and staircasing machinery; they often sit closer to leasehold practice. If a file is presented as a simple freehold with a hidden scheme restriction, stop and read the proprietorship register before you promise a completion date.

The mortgage offer is a set of conditions, not a cheering letter. It will assume a particular valuation, a particular occupancy (owner-occupier or buy-to-let), a particular title, and sometimes retentions (for example if the roof is defective). If the client's intended use is an Airbnb business and the offer is a standard residential owner-occupier product, you have a finance problem as well as a planning problem. Offers expire. Completing on a lapsed offer, or drawing funds before Handbook conditions are met, is how firms end up funding a completion out of client account in a panic.

Types of mortgage

For SQE1, start with the legal structure, then the product label.

A legal mortgage of land must be created by deed. On registered land the lender's legal security is completed by registration of a charge. Until registration, the lender may have only an equitable security, which is why the post-completion application is not optional admin. The usual modern form is a charge by way of legal mortgage, which gives the lender the statutory power of sale and the other Law of Property Act 1925 enforcement powers once the charge has become enforceable.

An equitable mortgage arises where the parties intended security but the legal formalities were not completed (for example, a defective deed), or where there is a specifically enforceable agreement to grant a mortgage that satisfies the Law of Property (Miscellaneous Provisions) Act 1989, s.2. Equitable security is weaker on sale and weaker against later legal purchasers. A buyer of the seller's equity of redemption still needs to see that the seller's existing legal charge will be discharged on completion.

Priority is practical. The purchase-money lender expects a first legal charge. A second charge is postponed to the first. If the buyer wants a family second charge at completion, the first lender's consent and the order of registration matter. Repayment mortgages reduce capital over the term. Interest-only mortgages do not; the borrower (and the lender) need a credible repayment vehicle. Buy-to-let products assume a tenancy; vacant-possession residential offers do not. Bridging is short-term and usually at a high rate. Historic endowment mortgages still appear on sales: you are interested in whether the existing charge will be redeemed, not in selling a new policy.

None of those product labels repairs a title defect. A first legal charge over a landlocked field is still a charge over a landlocked field.

Acting for a lender: dual instruction and the Handbook

It is common, and lawful, for the same solicitor to act for the buyer and the buyer's lender where the SRA Codes allow it and the interests coincide. It is not lawful to pretend they coincide when they do not.

The working instruction set is the UK Finance Mortgage Lenders' Handbook. Part 1 contains the general requirements (good and marketable title, searches, buildings insurance, occupier consents, use of funds, undertakings). Part 2 contains that named lender's variations: extra searches, whether indemnity insurance is acceptable for a given defect, how they want vacant possession handled, and how they want the certificate of title submitted. You cannot certify compliance with Part 1 while ignoring Part 2.

Typical lender requirements you must actually discharge:

• a first legal charge, registered, with the lender's restriction if required;
• investigation of title to Handbook standard, not to a private lesser standard the buyer finds convenient;
• specified searches, including a bankruptcy search against an individual borrower shortly before completion;
• buildings insurance from the moment the lender's interest is at risk, usually exchange or completion depending on the offer and the contract;
• a signed mortgage deed, and occupiers' consent where someone aged 17 or over will live at the property without being a borrower;
• no undisclosed second charges, incentives, or occupancy arrangements;
• use of the advance only for the purchase and authorised costs.

Occupiers are where dual instruction often cracks. The buyer may be happy that a parent lives in the spare room. The lender wants a consent that postpones that person's occupation rights to the charge. If the occupier will not sign, you have a lender problem, not a detail for the completion checklist.

Conflict is sharper on title defects. Suppose investigation shows possessory title, or a missing right of way, or a building over the boundary. The buyer, fully advised, may still want the house. The Handbook may require absolute title, an express easement, or insurance on named terms. You cannot send a clean certificate of title. You cannot quietly omit the defect. You report to the lender, or you withdraw from one of the instructions if the conflict cannot be managed. SRA confidentiality does not authorise a misleading certificate.

Company borrowers add capacity, board authority, and the need to register the charge at Companies House within the statutory period as well as at Land Registry. A charge that is late to Companies House can be void against a liquidator. That is a lender disaster with the solicitor's name on it.

Purpose of a certificate of title

The certificate of title is the solicitor's signed confirmation to the lender, usually on the current Law Society / lender-approved form, that:

• the solicitor acts for the lender (and usually the borrower) on the transaction;
• title has been investigated and is good and marketable, or is certified subject to named qualifications the lender has accepted;
• required searches and enquiries have been made and there is nothing that should cause the lender to hold back funds, other than disclosed points;
• the solicitor will complete, apply the advance only for the transaction, and register the lender's first legal charge (and any required restriction) within the priority period.

The lender releases funds in reliance on that certificate. It is not a covering email. A negligent or reckless certificate is a professional-indemnity claim waiting for a default.

Timing sits across this section and the next. You do not usually certify at the moment of taking instructions, because you have not investigated. You do not wait until a week after completion, because the lender has then already sent the money. The working rhythm is: exchange once the buyer has a live offer and a title they accept; then, as completion approaches, carry out pre-completion searches, confirm apportionments and the completion statement, and issue the certificate of title in time for drawdown, often several working days before completion, on the terms the Handbook specifies. If a new defect appears after certification and before completion, you cannot draw the funds and hope. You go back to the lender.

Hold the three ideas together for the exam: the source of the money, the type of security the lender thinks it is getting, and the certificate that tells the lender it is safe to send the advance. Title investigation without finance is an incomplete purchase file. Finance without title investigation is how lenders lose houses.