CeMAP Mortgage Law and Practice 2 — Questions and Answers
Question 1: What is the legal difference between a mortgage and a charge in English property law?
- There is no legal difference
- A mortgage transfers ownership while a charge creates a security interest without transfer (Correct answer)
- A charge is only used for commercial properties
- A mortgage can only be created by deed while a charge can be verbal
Correct answer: A mortgage transfers ownership while a charge creates a security interest without transfer
Historically, a mortgage transferred legal title to the lender, while a charge creates a security interest without any transfer of ownership.
In English law, the distinction between a mortgage and a charge is rooted in property law history. A traditional mortgage involved a transfer of the legal estate to the lender, with a provision for reconveyance on repayment. Modern practice uses a legal charge under the Law of Property Act 1925, which gives the lender the same powers as if they held a long lease without actually transferring title. The Land Registration Act 2002 further simplified this — all registered land mortgages now take effect as charges. The borrower retains ownership throughout.
Question 2: Under the Consumer Credit Act 1974, what rights does a borrower have regarding early repayment of a regulated mortgage?
- No right to early repayment exists
- The right to make early repayment at any time, with the lender limited in the charges they can apply (Correct answer)
- Early repayment is only permitted after 5 years
- The borrower must pay a penalty equal to 6 months' interest
Correct answer: The right to make early repayment at any time, with the lender limited in the charges they can apply
Under the Consumer Credit Act 1974 (for regulated agreements), borrowers have the right to make early repayment and lenders are restricted in the charges they can impose.
For mortgage contracts regulated by the Consumer Credit Act 1974, borrowers have a statutory right to make early repayment. The lender can charge a maximum of one month's interest as an early settlement fee. For mortgages regulated under MCOB (which covers most residential mortgages since 2004), the position is governed by the mortgage contract terms, but the FCA requires early repayment charges to be a reasonable pre-estimate of costs. Unfair terms may be challenged under the Consumer Rights Act 2015.
Question 3: What is the significance of the Land Registration Act 2002 for mortgage lenders?
- It abolished the requirement to register mortgages
- It established that legal charges over registered land must be registered at the Land Registry to take effect (Correct answer)
- It only applies to commercial property mortgages
- It removed the lender's right to repossess property
Correct answer: It established that legal charges over registered land must be registered at the Land Registry to take effect
The Land Registration Act 2002 requires charges over registered land to be registered at the Land Registry — an unregistered charge will not take effect as a legal charge.
The Land Registration Act 2002 modernised the system of land registration in England and Wales. For mortgage lenders, the key provision is that a legal charge over registered land must itself be registered at the Land Registry to take effect as a legal charge. An unregistered charge may still exist as an equitable charge but would have weaker priority rights. The Act also introduced electronic conveyancing provisions and strengthened the system of priority notices. First registered charges take priority over subsequent charges.
Question 4: What duty does the mortgagee (lender) owe when exercising their power of sale?
- No duty — they can sell at any price
- A duty to obtain the best price reasonably obtainable at the time of sale (Correct answer)
- A duty to achieve at least 90% of the market value
- A duty to wait at least 12 months before selling
Correct answer: A duty to obtain the best price reasonably obtainable at the time of sale
The lender must take reasonable care to obtain the best price reasonably obtainable, as established in case law and statute.
When a lender exercises its power of sale under section 101 of the Law of Property Act 1925, it owes a duty to the borrower to obtain the best price reasonably obtainable at the time of sale. This was confirmed in the case of Cuckmere Brick Co v Mutual Finance [1971]. The lender is not required to delay sale to wait for better market conditions, but must take reasonable steps — such as proper marketing, obtaining professional valuations, and not selling at an undervalue. If the lender breaches this duty, the borrower can claim damages for the difference.
Question 5: What is an equity of redemption in mortgage law?
- The interest rate charged on the mortgage
- The borrower's right to redeem (pay off) the mortgage and recover full ownership free from the charge (Correct answer)
- The amount of equity built up through repayments
- The lender's right to receive repayment
Correct answer: The borrower's right to redeem (pay off) the mortgage and recover full ownership free from the charge
The equity of redemption is the borrower's fundamental right in equity to repay the mortgage and have the property free from the lender's charge.
The equity of redemption is a cornerstone of mortgage law developed by the courts of equity. It protects the borrower's right to repay the mortgage debt and have the property returned free from the lender's interest. Courts will strike down any 'clog or fetter' on the equity of redemption — meaning any term that prevents or unreasonably restricts the borrower's ability to redeem. This includes excessive redemption penalties, options to purchase the property, and unreasonably long mortgage terms. The principle ensures that a mortgage remains a security transaction, not a means of acquiring property.
Question 6: What are the legal requirements for a valid mortgage deed in England and Wales?
- It only needs to be signed by the borrower
- It must be a deed — signed, witnessed, and delivered — and must comply with the Law of Property (Miscellaneous Provisions) Act 1989 (Correct answer)
- It can be an informal written agreement
- It must be signed in the presence of a solicitor only
Correct answer: It must be a deed — signed, witnessed, and delivered — and must comply with the Law of Property (Miscellaneous Provisions) Act 1989
A legal mortgage must be created by deed under section 52 of the Law of Property Act 1925, meeting the requirements of the LP(MP)A 1989 — signed, witnessed, and delivered.
Under section 52 of the Law of Property Act 1925, a legal mortgage (charge) must be made by deed. The Law of Property (Miscellaneous Provisions) Act 1989 section 1 defines the requirements for a valid deed: it must be clear on its face that it is intended to be a deed, it must be signed by the person creating it in the presence of a witness who attests the signature, and it must be delivered. For registered land, the charge must also be registered at the Land Registry under the Land Registration Act 2002 to take effect as a legal charge.
CeMAP Mortgage Law and Practice 2
What is the legal difference between a mortgage and a charge in English property law?