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Covenant & Legal Charge

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  • Covenant & Legal Charge

    Hope somebody can help, I bought a house 6 years ago which was part of a "low cost" housing scheme - it wasn't "shared ownership" and the council advised us of this. The scheme meant that we paid 70% of the market value and if in the future we wanted to move, then we would have to offer the property to another council nominated individual for 70% of the market value.

    We moved about 3 years ago, and as the council could not find somebody to take the property over, we asked them to "move" the covenant to the new property.

    I'm just about to arrange a re-mortgage, and my new mortgage company are saying the council has a "legal charge" on the property and that they own 30% of the property.

    I don't understand how this has happened ?

    With the fall in house prices, a 70% valuation of my house is less than my mortgage, the council therefore are refusing to allow me to change mortgage providers, which means that I'll be stuck on the SVR of the current firm [ which is Northern Rock ].

    Can anybody five me any advice on this ??

    Thanks

  • #2
    This is basically just a case of negative equity isn't it?

    OP only bought "70%" of the second property and the Council secured its 30% by putting a charge on the title. Why should OP be able to borrow more than 70% of the current value? After all if OP had a 100% mortgage on 100% of the value and the value went down, OP would be in the same position.

    As a conveyancing solicitor (assuming any property involved is in England/Wales) I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.
    RICHARD WEBSTERwww.rwco.co.uk
    As a conveyancing solicitor I want to be helpful (England/Wales only) but can't accept liability for this.

    Comment


    • #3
      Yes, I suppose in a way it is, however on the original property there was only a convenant that had to be observed WHEN the property was disposed of, I don't want to dispose of the property but the council seem to have changed the covenant into a CHARGE - what is the difference between the two?

      The council assured me when I bought the original property that it was 100% mine and than only when I wanted to move would they get involved in any way - now it seems they have the authority to veto my re-mortgage application.

      Comment


      • #4
        hmm this is a difficult one, the words aren't really sharing the full picture. 'you own 100% of the house until you sell it'. Shared equity usually means you'll pay a rent on the % the Council own, this is the bit I think they sort of refer to when they say you own it. The mortgage company are only interested in what they can reclaim if you default and clearly in both the initial and current instance that's only 70% of the value. Whether it was by covenant or legal charge it amounts to the same thing (although more chance of you getting out of a covenant).
        The problem here relates to the mortgage market -now lenders want more deposit (equity) and aren't keen to take a view on lending. It appears you're one of the many unfortunate ones who have got stuck with the SVR trap once the term ended. If you need anywhere near 100% of your stake (of 70%) you'll have to look around hard to find a remortgage
        Mark Donald
        www.Reports4Planning.co.uk
        providing more effective reports.......

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        • #5
          It was never "sold" to me as shared equity - I don't pay rent to the council on the 30%.

          The deal was that if we ever sell the house on, we must be prepared to either:

          1. Sell to a council nominated individual for 70% of the market value or
          2. Reimburse the council to the tune on 30% of the market value upon completion.

          I understnd why the council want to enforce the "you can only borrow 70% of the value", but initailly when we bought the property they were quite happy to let us borrow 195 on a sale price of 262.

          It's only now that they are saying that it's changed from a covenent to a charge - I'm still truggling to understand the difference...

          Comment


          • #6
            the covenant in my opinion is not as secure a position as having a legal charge, hence why Council made the change when they got the opportunity. The charge requires a solicitor to sort the encumberances before transactions are completed. The covenant relies on Council chasing you I think for the money (not totally certain on this). Cant comment on why you were able to borrow more than 70% (of course in the past you could get 120% mortgages so perhaps this explains it.....
            You will now have the covenant registered against the title of the property so anyone lending will see this in the legal searches (a covenant could possibly be missed)
            Mark Donald
            www.Reports4Planning.co.uk
            providing more effective reports.......

            Comment


            • #7
              A charge is more secure, but if the covenant said something like not to sell the property without paying 30% of its value to X Council then any lender with any sense would not want to lend more than whatever its maximum loan to value ratio was of the 70%, e.g if 90% then they would only lend 63%.

              The downside is that the charge will need to be postponed so that Council became 2nd chargee with bank/building society first, because most major lenders do not want to have a second charge on a property. Council might not agree to postpone.
              RICHARD WEBSTERwww.rwco.co.uk
              As a conveyancing solicitor I want to be helpful (England/Wales only) but can't accept liability for this.

              Comment


              • #8
                parking space

                Hi all. I hope I can get some sound advise on this forum.

                I bought my flat in 2001 with an "allocated" parking space which the Lease describes as being "clearly defined". This means that in the Lease it shows the location of my parking space. Over the last 7 years, this parking space has never been white lined for my sole use and the gates to the development has a key code which enables anyone (including neighbours friends etc) to enter the parking area and park free of charge.

                I have raised this matter with several Management Agents that have controlled this development over the years but to date, the matter remain un resolved. I have recently put the Landlords (those that I pay Ground rent to) on notice that unless the fee of £18,000 be paid within 14 days, I will sue them through the HMCS on line system. Have I acted correctly or do I need to sue someone else and in adifferent way?

                Please someone help as if I wish to seel the property, a good conveyance lawyer will pick up on this outstanding matter!!!

                Thanks

                Jason

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