Buying a home often involves borrowing money. This article looks at using a mortgage, personal loan or bridging loan to finance your purchase. It also covers the legal issues you need to consider.

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Conventional mortgages with a bank or building society

A mortgage is secured against your home. It may be in your name or in the joint names of you and your partner or other co-owners. Each arrangement has legal implications.

Your mortgage lender will have certain rights over the property. This means you may not be able to do everything an outright owner could do.

For example, you may need your lender’s written consent before renting out your home. You may also need to notify them before carrying out structural building work. Your lender may require you to arrange a higher level of home insurance than you consider necessary.

If the mortgage is in your sole name, you are ultimately responsible for repaying the debt. This applies even if you have an agreement with someone else who shares the property.

If the mortgage is in joint names, everyone named on the mortgage is liable for the repayments. If the other person fails to pay their share, the lender can usually ask you to pay the full amount. Speak to your lawyer about how you can protect yourself.

You should also be aware that:

• Your home could be repossessed if you do not keep up with your mortgage repayments.
• Mortgage arrears could affect your credit rating. They may also lead to court proceedings to recover the debt.
• Mortgage costs, including arrangement and early repayment fees, can be significant.
• You must meet your lender’s conditions to qualify for a mortgage. These vary between lenders.
• Lenders must assess whether you can afford the repayments. This may limit how much you can borrow.
• Deposit requirements depend on the lender and mortgage product.
• Getting a mortgage may be harder if your circumstances are unusual. This could include being self employed or approaching retirement.

Mortgage agreements can be complex. Your lawyer should be familiar with your lender’s requirements and explain the legal implications. They can also advise you if you fall behind with repayments and face court proceedings.

Personal loans

If your mortgage falls short of the amount you need, you may consider a personal loan. Make sure you can afford the repayments alongside your mortgage and other purchase costs.

Not all mortgage lenders accept deposits funded by personal loans. Taking out a loan may also reduce how much you can borrow on your mortgage. Lenders take your existing financial commitments into account when assessing affordability.

Some personal loans require a guarantor. For example, your parents may agree to guarantee the loan. You and your parents need to understand the risks. If you fail to repay the loan, the lender could ask them to pay it instead.

If the debt remains unpaid, court proceedings may follow. A court judgment could seriously affect your credit rating and your parents’ credit rating. Depending on the circumstances and any enforcement action, their assets could also be at risk.

Bridging loans

A bridging loan may help if you need to buy a new property before completing the sale of your existing home.

Bridging loans are usually short term borrowing. The repayment period depends on the loan terms. You need a realistic plan to repay the loan if your existing property has not sold by the repayment date. You also need to consider what would happen if the sale fell through.

If you buy your new home before selling your previous main home, you may have to pay the higher rates of Stamp Duty Land Tax (SDLT) in England or Northern Ireland. You may be able to claim a refund if you sell your previous main home within the permitted period. Conditions apply.

Your lawyer can advise you on the tax implications. They can also discuss other ways to cover any shortfall in your funding.

Conclusion

You need to have sufficient finance in place before committing to a property purchase. If you need to borrow money, make sure you understand the options and the legal implications.

This article covers some of the available options. Other arrangements may also be worth considering, each with its own legal implications. Equity release, for example, may be an option for existing homeowners.

Whatever you decide, budget carefully and discuss your plans with your lawyer. They can explain the house buying process and the potential consequences of your decisions.

For advice on buying a home or the legal implications of financing your purchase, please contact our Residential Property team.