Progressing to exchange of contracts - Sources of finance an...

Learning Outcomes

This article comprehensively explores the legal and practical aspects of funding a property purchase from the offer stage through to the exchange of contracts, with particular attention to modern conveyancing practice in England and Wales.

• Identify and critically evaluate the primary sources by which buyers commonly finance property purchases, including high street lenders (banks and building societies), employer and private loans, government schemes (such as Help to Buy, shared ownership, First Homes), and bridging finance, as well as alternative and non-standard routes, highlighting risks associated with each.
• Demonstrate thorough understanding of lender diligence requirements, including analysis of title, property suitability, planning permissions, building regulations, restrictive covenants, lease terms, ground rents, service charges, construction type, environmental risks (e.g., contamination and flooding), and how these investigations support the security for mortgage lending.
• Distinguish effectively between types of mortgage loans and repayment vehicles available in the UK—capital and interest/repayment, interest-only, part-and-part/hybrid, offset, flexible, and Sharia-compliant (such as Murabaha, Ijara, and Diminishing Musharaka)—including a sophisticated appreciation of their suitability for residential, buy-to-let, and commercial borrowers.
• Analyse the structure and consequences of different interest rate products, including fixed, variable, tracker, discount, capped/collared rates, and SVR (standard variable rate), evaluating borrower risk profiles and lender requirements, and the implications of early repayment charges, portability, and product-linked investment or insurance obligations.
• Explain and assess solicitor duties and processes in dealing with mortgage lending in a property transaction, including: the interpretation, disclosure, and satisfaction of conditions in the formal mortgage offer; management of conflicting interests when acting for both borrower and lender; reporting obligations under the UK Finance Mortgage Lenders’ Handbook; and the procedures for raising and/or addressing deficiencies in title or funding (including through defective title or restrictive covenant indemnity insurance).
• Appraise the legal requirements and best practice for reporting to lenders and buyers on matters such as lease terms, short leases, high ground rent, environmental liabilities, third-party contributions to purchase price (gifts or loans), and incentives or retentions, including the documentary requirements to record and disclose all material facts.
• Assess the scope and limitations of mortgage advice by solicitors under FSMA 2000, including the professional firms exemption, SRA rules, the distinction between generic and product-specific financial advice, and the importance of appropriate referrals.
• Describe the significance, forms, and procedural mechanics of Certificates of Title (CoT), including both standard and City of London Law Society certificates, detailing their function in triggering lender drawdown, managing registration deadlines, and resolving qualified or non-standard title issues found prior to exchange or completion.
• Understand procedural requirements for completion of mortgage-backed purchases, focusing on the importance of timing, official and bankruptcy searches (OS1/OS2, K16), occupier consents, insurance arrangements, registration formalities (Land Registry and Companies House), handling of deposits, chain arrangements, and practical arrangements for release of funds and documentation.
• Recognise the additional regulatory, due diligence, and reporting issues associated with new-builds, shared ownership, devolved government housing schemes, use of bridging finance, Sharia-compliant lending, and the handling of title or planning complications revealed by searches and pre-contract enquiries.
• Apply best practice for management of client and lender risks in conveyancing, including compliance within professional conduct obligations, money laundering regulations, and prudent file management.

SQE1 Syllabus

• the main funding sources for property purchases and their risk profiles (banks, building societies, private loans/advice, bridging/short-term finance, employer and government schemes);
• the conveyancer’s responsibility to investigate and report on title, property type, lease terms, ground rents, service and maintenance charges, planning and building control, and construction/materials issues for property lending;
• the range, structure, and legal implications of mortgage products: repayment (capital and interest), interest-only, hybrid/part-and-part, offset, flexible, linked-investment and protection policies, and Sharia-compliant alternatives;
• the technical differences, legal consequences, and client suitability for fixed-rate, tracker, capped/collared, discount, and SVR mortgage options, including how early repayment charges, redemption penalties, and portability clauses operate in practice;
• solicitors’ duties and restrictions under FSMA 2000 for the provision of financial/mortgage advice, the SRA "professional firms exemption," compliance with scope and conduct rules, SRA Principles and Codes;
• the mechanics, content, and use of mortgage offers, retentions, and the formal Certificate of Title (CoT) (standard and CLLS forms), and practical steps for ensuring lender requirements are satisfied before exchange and completion;
• analysis and correct application of the UK Finance Mortgage Lenders’ Handbook (and its lender-specific parts) regarding reporting of adverse title, deposit sources, property/incentive issues, leasehold complications, or non-arm’s-length transactions;
• regulatory and professional conduct around acting for lender and buyer simultaneously, managing actual or potential conflicts, confidentiality, and information barriers, and awareness of circumstances requiring referral or withdrawal;
• sequencing and content of pre-completion steps: issuing the CoT, OS1/OS2 or K16 bankruptcy searches, ensuring unconditional readiness for exchange, drawdown of funds, holding deposits (stakeholder vs agent roles), chain/purchase synchronisation, and management of builder incentives or gifts;
• legal and practical issues surrounding schemes or products with equity loans, staircasing, regional eligibility, staircasing restrictions, and complex lender or housing association documentation;
• processes for registration of transfers, mortgages, and charges at Land Registry (including required supporting documentation) and Companies House, including timing and the consequences of breach of deadline or priority period.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following statements regarding a solicitor acting for both a buyer and their mortgage lender in a residential transaction is most accurate?
   1. The solicitor must always cease acting for both if any potential conflict arises, regardless of client consent.
   2. The solicitor owes a primary duty to the lender, overriding the duty to the buyer.
   3. Acting for both is generally permissible if it is a standard mortgage on standard terms and no conflict exists or is likely.
   4. The solicitor can share all information received from the buyer with the lender without the buyer's consent.
2. A buyer takes out an interest-only mortgage. What is the primary risk associated with this type of mortgage?
   1. The monthly repayments will fluctuate significantly based on interest rate changes.
   2. The capital sum borrowed must be repaid at the end of the mortgage term, requiring a separate repayment plan.
   3. Early repayment charges are always higher than for repayment mortgages.
   4. The interest rate is typically higher than for a standard repayment mortgage.
3. What is the primary purpose of the Certificate of Title provided by the buyer's solicitor to the lender?
   1. To confirm the buyer has sufficient funds for the deposit.
   2. To request the release of the mortgage advance and confirm the property title is good and marketable security.
   3. To detail the results of the property survey.
   4. To provide the lender with the buyer's personal financial details.

Introduction

Securing the proper funding and completing all necessary due diligence are foundational to successful conveyancing and essential to avoiding post-exchange dispute or default. In typical English and Welsh practice, the majority of property transactions—whether residential or commercial—are financed through a mixture of buyers' equity (savings, proceeds of sale, third-party gifts or loans) and secured borrowing (a mortgage or legal charge). The solicitor’s obligations extend beyond mere process management, encompassing a critical advisory and risk management function to ensure that the client’s financial arrangements are robust, compliant, and fully declared to all parties involved—most notably any mortgage lender.

Crucially, prior to exchange of contracts, all finance arrangements—particularly mortgage offers—should be unconditional and formally accepted by the borrower. The solicitor should never allow a client to exchange contracts while finance is uncertain. If funding is dependent on a linked sale, chain of transactions, or receipt of non-standard or third-party funds, these circumstances must be dissected for lender risk, with full disclosure and agreement secured before proceeding. Where practical or title issues arise (such as the use of builder incentives, gifted deposits, short leasehold terms, or unregistered property), the solicitor’s reporting and recording duties to the lender are especially acute. Transparency here is fundamental to both professional standards and lender risk assessment.

Key Term: Mortgage

A legal or equitable security interest in land, granted to a lender (the mortgagee) by a borrower (the mortgagor), under which the lender may take possession and sell the property if the borrower defaults.

Before exchange, the solicitor will have scrutinised the property title and all related issues, such as planning permissions, building regulations, restrictive covenants, easements, occupier rights, and the suitability of the property as mortgage security. Special care must be taken in leasehold transactions (whether residential or commercial), which often carry additional lender risk due to lease length, ground rent, service charges, and restrictions on assignment, sub-letting, or user. Advising the client about insurance, financial liabilities, and risks associated with chain and delayed completions remains an essential part of the solicitor's role—as is ensuring that all methods by which the buyer provides funding are not only legally sound but also accepted by the lender and appropriately recorded for compliance and registration purposes.

Solicitors must at all times be aware of, and comply with, the regulatory perimeter imposed by the Financial Services and Markets Act 2000 (FSMA 2000) and SRA rules: explicit product recommendations and arrangement of mortgage contracts are only permitted within narrow exceptions or with appropriate FCA authorisation.

Sources of Finance

Financing a property acquisition in England and Wales relies either on buyer-provided equity or, more commonly, debt finance secured against the property. The most frequent and accepted forms of finance are detailed below, alongside their attendant risks, legal mechanics, and professional duties for solicitors.

Mortgages from Banks and Building Societies

The predominant means of raising funds for a property purchase remains the residential (or sometimes commercial) mortgage, typically secured by a first legal charge. These mainstream lenders are subject to a stringent regime of pre-lending diligence, statutory protections, and compliance with the FCA’s responsible lending guidelines. The process includes assessing the applicant’s creditworthiness (through income, expenditure, credit-score analysis, and stress-testing against interest rate rises), market valuation of the proposed security, and, particularly, analysis of the property’s legal title.

Key Term: Loan-to-Value (LTV)

The percentage ratio of the amount borrowed (the loan) to the lower of the purchase price or the property’s value. Mainstream residential lenders usually cap LTV at 90–95% for standard properties, and lower for unusual/complex assets.

Solicitors must verify not only the lender’s consent and appetite, but also that the property itself is acceptable as security—checking for matters such as a minimum acceptable lease term (typically at least 85 years, but longer for some lenders), ground rent escalation clauses, service charge arrears, defective title, and outstanding planning or building regulation issues. Where concerning features are discovered—such as a new-build without NHBC or other appropriate structural warranties, outstanding completion certificates, or environmental contamination—prompt disclosure to the lender is required by both the UK Finance Mortgage Lenders’ Handbook and SRA professional conduct duties.

Lenders may make formal mortgage offers conditional on prior resolution of property or borrower issues (such as carrying out essential repairs or obtaining building regulation certificates) or may retain part of the advance pending future satisfaction of their requirements. Solicitors must ensure that buyers understand how such retentions impact their ability to complete and fund the transaction.

Key Term: Mortgage Offer

The lender’s formal, written confirmation of the loan amount, key product and repayment terms, any retentions or special requirements (such as completion of repairs, provision of certificates, or evidence of deposit source), the validity period, and any procedures to be followed prior to drawdown.

Mortgages for non-standard residences, such as short-lease flats, live/work units, or properties with defective title or unusual construction, will likely attract more rigorous lender scrutiny (and sometimes refusal to lend). Many lenders will not lend against short leases (e.g. below 70–80 years unexpired), properties with high or escalating ground rents, those affected by unremediated cladding, or those failing to meet building control/planning requirements.

Solicitors must pay particular care in reviewing the UK Finance Mortgage Lenders’ Handbook (formerly the Council of Mortgage Lenders’ Handbook), which sets out mandatory requirements for legal advisers. The Handbook's Part 1 applies to all lenders when acting for both borrower and lender, while Part 2 details lender-specific requirements.

Key Term: UK Finance Mortgage Lenders’ Handbook

A set of binding instructions on solicitors acting for mainstream lenders, specifying procedures for the investigation and reporting of title, acceptability of various property types, deposit/payment arrangements, handling of incentives, reporting of short leases, lease/ground rent arrangements, planning/building regulations, and compliance with anti-fraud, money laundering, and reporting requirements.

Employer Loans

Employer Loans

Certain large employers—particularly in the financial or public sector—may provide preferential mortgage loans to employees. Such loans often bear below-market interest rates and may feature direct payroll deduction. However, the solicitor should be alert to risks: employer loans typically become repayable upon cessation of employment (due to resignation, dismissal, or redundancy), potentially requiring refinancing, and can trigger a taxable benefit if below-market rates apply. Where employer loans are secondary to bank/bank mortgages, the main lender will almost always require priority (and often formal postponement) to protect its security.

Private Mortgages

Private Mortgages

Family, friends, or private investors may provide capital either as true gifts, simple loans, or secured private mortgages. Even in cases where there is full familial trust, written documentation is essential to prevent later disputes, and (where security is provided) the charge must be registered, with priority established. A private mortgage or secured loan must be disclosed to the main lender, whose consent or agreement will be required. Lenders may prohibit or restrict subordinate charges, and often require a formal Deed of Postponement or similar documentation if consenting to a second charge.

False representations of gifts (to disguise repayable loans as gifts) or failure to disclose the existence and source of such contributions constitute mortgage fraud and attract severe regulatory and criminal sanctions. The solicitor must conduct proper source of funds checks and obtain suitable written declarations from donors or lenders, and always report to the main lender in accordance with Handbook requirements.

Government Schemes

Government Schemes

A range of government-backed schemes have been implemented and typically require additional legal and lender diligence. Notable examples include:

• Shared Ownership: Buyer purchases an initial share (commonly between 25% to 75%) and pays rent on the remainder to a housing association or registered provider, with future ‘staircasing’ available to purchase additional shares. The main lease often contains strict restrictions on eligibility, consents on assignments or alterations, and priority arrangements for mortgagees.

• Help to Buy Equity Loan (Legacy): No longer open to new applicants (as of March 2023), but many properties remain subject to Help to Buy equity charges registered on the title. These impose restrictions on sale, further advances, staircasing, and remortgage, often requiring prior consent from Homes England and full compliance with specialist documentation (Help to Buy Charges, Form of Undertaking, etc.).

• First Homes Scheme: Offers discounted new-build houses (minimum 30% discount to a capped threshold) to eligible buyers (often first-time buyers with local connections or key worker status). Must be sold on under identical affordable criteria for a set period. Lenders may restrict or prohibit lending on these units.

• Regional and Devolved Schemes: In Scotland and Wales, government equity loan or shared equity schemes have additional or alternative requirements, and local housing authority or registered provider approval may be needed.

Conveyancing in these transactions is complex: bespoke documentation, participation agreements (for staircasing or disposal), and restrictions on title (including ‘staircasing’ consent, first refusal or first charge provisions) are all common and must be carefully explained to both buyer and lender. Disclosure of scheme participation, or any government ‘equity’ charge, is mandatory during title investigation and mortgage application.

Bridging Finance

Bridging Finance

Short-term, high-cost bridging loans are sometimes used where immediate funding is needed (e.g., to purchase a property before sales proceeds are available from another) and are typically secured by a time-limited legal charge over the purchased property. Bridging finance is high risk, often at notably higher interest rates, and is subject to substantial arrangement and exit fees. Solicitors must ensure a credible 'exit strategy' is in place—such as an agreed sale or mortgage offer for remortgage—and that all lender requirements for priority, documentation, and title investigation are fulfilled.

Where bridging loans are to be used for the purchase of a main residence, they may be subject to FCA 'regulated mortgage' rules if the borrower is an individual and the loan is secured on property to be occupied as a home.

Key Term: Bridging Loan

A short-term, high-interest facility granted to bridge a funding gap between the purchase of a new property and anticipated selling or refinancing; usually secured by a legal charge against the property being acquired.

Cash Purchases and Other Sources

Cash Purchases and Other Sources

Where a buyer proposes to buy with cash or significant third-party funds, the solicitor must undertake rigorous anti-money laundering and source of wealth enquiries. Money laundering and mortgage fraud are significant risks in high-value or cash-intensive purchases. Documented evidence of the source of funds and wealth (e.g., savings account records, sale/purchase statements, inheritance documentation) must be obtained, scrutinised, and kept on file for compliance purposes. Any deposit or purchase balance contributed by third parties (including family gifts or loans) must be transparently recorded and disclosed to the lender, with formal gift letters or loan agreements as appropriate.

Planning, Building Regulation, and Title Issues

Planning, Building Regulation, and Title Issues

An essential part of lender (and buyer) due diligence is establishing that the property holds the correct planning permission (for construction, prior development, or intended use), with all conditions/obligations discharged. Any breach in planning or building control can be enforced against the current owner, and lenders are reluctant to accept properties with unresolved enforcement threats or incomplete regularisation (e.g. missing Building Regulation Completion Certificates). Where risk is present, specialist indemnity insurance may sometimes be accepted, subject to lender approval.

All covenants (restrictive and positive), easements, and third-party rights should be ascertained during title investigation and reported to the lender if they may adversely affect the value, marketability, or security of the property. Issues with highways, unadopted roads, or unadopted sewers/drainage should be made clear in solicitor reporting.

Key Term: Restrictive Covenant

A binding promise in a deed not to do something with land (e.g., not to build or use a property for business), capable of running with the land and binding successors in title under the rules of equity.

Summary: Solicitors are required to conduct a thorough legal diligence that extends beyond pure title investigation, encompassing planning, building, environmental, and occupational risks, aiming to protect all parties' (particularly lenders’) interests and to comply with both statutory and professional conduct obligations.

Types of Mortgage

Understanding and identifying the proper mortgage structure is essential for client and lender security, as well as for effective advice on funding and risk. The range of UK mortgage types includes both standard retail products and specialist arrangements for non-standard borrowers or properties.

Repayment Mortgages

The mainstream mortgage for owner-occupier buyers is the 'repayment mortgage', where each monthly payment covers both the interest accrued and part of the capital sum. These mortgages ensure that, provided the borrower meets all payment obligations, the entire debt will be cleared by the end of the term.

Key Term: Repayment Mortgage

A mortgage where the borrower’s regular (usually monthly) payments cover both interest and capital repayment; at the end of the term, the loan is fully repaid.

Repayment mortgages may feature overpayment, underpayment, drawdown, or payment holiday options (with consequent lender consent or penalty restrictions). Lenders may set conditions for overpayments (e.g., capped annual figures) and may apply early repayment charges (ERCs) or other fees for departing from required payment patterns.

Interest-Only Mortgages

Interest-only products require payments of interest alone throughout the term, with the original amount borrowed remaining outstanding at the end. Lenders typically require documentary evidence (and sometimes ongoing verification) of an acceptable, credible repayment vehicle (savings, investments, other assets, endowment policy, or planned property sale).

Key Term: Interest-Only Mortgage

A mortgage where the borrower is only required to pay interest during the agreed term, with the capital sum repayable in full at term or by an alternative specified vehicle.

Interest-only mortgages are now tightly regulated, with most mainstream lenders restricting their availability to buy-to-let investors or high-net-worth individuals. For standard residential transactions, lenders will only accept such arrangements where a robust, verifiable repayment plan is in place. The primary risk is that, if the main repayment plan fails or underperforms, the borrower will need to redeem the outstanding capital by refinancing or sale, or risk repossession.

Part-and-Part, Offset, and Flexible Mortgages

Some mortgage products allow for a combination—‘part-and-part’—where a portion of the loan is on repayment terms and a portion is interest-only. Borrowers might opt for part-and-part arrangements if, for example, they wish to limit monthly outgoings while still aiming to reduce the debt over time.

Offset mortgages typically link the mortgage balance to the borrower’s savings or current accounts. Interest is only charged on the net balance (i.e., mortgage balance minus accounts' balances held), allowing borrowers to reduce total interest costs by holding higher credit balances in linked accounts.

Flexible features commonly integrated into modern mortgage products include:

• Overpayment options (additional payments partially or wholly allowed without penalty)
• Underpayment or payment holiday options (subject to prior overpayment accrual)
• Drawdown facilities (the ability to borrow additional sums up to a pre-agreed limit)
• Portability (the ability to transfer the mortgage to a new property when moving)

These products appeal particularly to self-employed individuals or those with irregular incomes, but may have higher headline interest rates to reflect the enhanced flexibility and increased risk for lenders.

Fixed, Tracker, Discount, and Variable Rate Mortgages

Interest rate structure is an essential client and lender consideration. Major interest regimes include:

• Fixed-rate: Unchanging interest rate for a defined period (e.g., 2, 5, or 10 years), guaranteeing regular payment amounts, but typically reverting to the lender’s SVR after the fixed period concludes.
• Tracker: The interest rate follows a nominated reference point (most commonly the Bank of England base rate), remaining a fixed margin above (or, rarely, below) that benchmark for a set period, after which the loan usually reverts to the SVR.
• Discount: The mortgage’s rate is discounted below the SVR for an initial, limited term, designed as an inducement. After expiry, the rate reverts to SVR, often higher than comparable fixed or tracker rates during the initial period.
• Standard Variable Rate (SVR): The lender’s standard reversionary rate, which may fluctuate at the lender’s discretion and is generally the default after expiry of a fixed, tracker, or discount product.

Key Term: Fixed-Rate Mortgage

A mortgage loan where the interest rate is fixed for an initial term, insulating the borrower from rate increases but usually incurring higher ERCs for early redemption during the fixed period.

Key Term: Tracker Mortgage

A mortgage product where the payable interest rate moves in line with (tracks) a designated external reference rate.

Key Term: Discount Mortgage

A product where the interest rate is set at a specified discount below the standard variable rate for an introductory period.

Key Term: Standard Variable Rate (SVR)

The reversionary mortgage interest rate set by the lender after the expiry of any initial fixed, tracker, or discounted rate period; this may be adjusted by the lender at any time.

Key Term: Early Repayment Charge (ERC)

A financial penalty levied by the lender if a mortgage is paid off in part or full early (typically during a fixed, tracker, or discount period).

Capped and collared rate products (now less common) provide a maximum (cap) and/or minimum (collar) rate for periods of the loan, limiting repayment volatility but potentially costing more than comparable non-capped alternatives.

The mortgage offer and associated Key Facts Illustration (KFI) or European Standardised Information Sheet (ESIS) will specify when ERCs or other penalties apply and must be explained clearly to borrowers by the solicitor.

Sharia-Compliant Finance

Islamic (Sharia) finance is growing in importance in the UK market, designed for clients for whom payment or receipt of interest is religiously prohibited. Accordingly, lenders have developed structures intended to comply with both Sharia and regulatory requirements.

Common Islamic finance models include:

• Murabaha: The bank purchases the property and sells it to the client at a known markup, paid by instalments. No interest is charged as the profit element is agreed upfront.
• Ijara: The bank buys and retains ownership of the property, leasing it to the client for a set period. The client pays rent, with an option to purchase the property at the end of the term.
• Diminishing Musharaka: The property is jointly owned by bank and client, with the client gradually buying out the bank’s share over time, reducing the rent proportionately until the entire ownership is transferred.

Sharia compliance requires bespoke legal documentation, particularly around title, risk allocation, insurances, and remedies on default. The lender typically registers its interest by way of a restriction or charge at the Land Registry, ensuring its ability to enforce and sell the property if required, notwithstanding the differing contractual structure.

Key Term: Sharia-Compliant Finance

Lending and investment structures which avoid interest (riba) in favour of profit-based, lease, or joint ownership models, enabling clients to acquire property in accordance with Islamic law.

The Solicitor's Role: Buyer and Lender

Acting in a conveyancing transaction with involved mortgage lending, the solicitor often represents both buyer and lender. Each client’s duties must be balanced with rigorous compliance with professional standards, with careful management of actual or potential conflicts, confidentiality, and legal disclosure priorities.

Advising the Buyer

The solicitor’s advice to the buyer must be comprehensive, ensuring clients understand the nature and ramifications of the mortgage, including:

• The risk of default (repossession, judgment, impact of negative equity);
• Obligations regarding property insurance, maintenance, and compliance with title covenants, planning, and building regulations;
• Lender controls over letting, sub-letting, assignment, or property alterations or additions;
• The operation and consequences of retentions, conditions, linked products, ERCs, or portable and flexible features in their chosen loan;
• Risks connected with chain purchases, synchronisation with related sales, or the use of builder or third-party incentives.

Where the property will be jointly owned but not equally benefited (for example, where a family home is remortgaged to fund one co-owner’s business or investment), or where there is a risk of undue influence or lack of informed consent (such as a family member pressed to provide security for a relative’s loan), the solicitor must follow the Etridge guidelines. This may necessitate prompt referral for independent legal advice, or at minimum, thorough explanation and full evidential records of the client's informed decision and voluntary agreement.

Key Term: Occupier’s Consent

Written confirmation by any adult not a party to the mortgage, but in occupation of the property, that they waive or postpone their rights of occupation to those of the lender—supporting the lender’s ability to secure possession if required.

Acting for the Lender

Professional practice in residential transactions usually allows the buyer’s solicitor to act for both buyer and lender, unless non-standard products or material conflicts arise. Obligations to the lender are largely statutory and dictated by the UK Finance Mortgage Lenders’ Handbook and the individual lender's written instructions.

Key lender priorities include:

• Ensuring that the lender enjoys a first legal charge, with no unapproved prior charges or encumbrances on the title save those the lender has expressly permitted;
• Confirming that the borrower holds good and marketable title, and that the property meets all requirements relating to construction, planning/building regulation history, and suitability for occupancy;
• Disclosure of material issues such as short leases, onerous ground rents, unusually high service charges, ongoing dispute or litigation, or problematic physical or legal defects;
• Confirming the source and form of all deposit and purchase moneys (including gifts, third-party funds, or builder incentives), and thoroughly reporting on any unusual features, reductions, or inducements.

The solicitor must keep clear records of all communications and promptly report to the lender any matters required by the Handbook or which might reasonably affect the lender’s security, including issues with gifted deposits, short lease terms, or significant environmental or planning risks.

Key Term: Standard Mortgage

A mortgage in the lender’s normal, non-negotiated form—generally intended for residential, buy-to-let, or standard investment properties on ordinary terms.

Where concerns arise that cannot be resolved before exchange (such as title inadequacies, unmanageable defects, or unresolved planning/building regulation breaches), a qualified Certificate of Title must be issued, setting out the unresolved issues and the lender’s required response sought before proceeding.

Key Term: Certificate of Title (CoT)

A formal certificate issued by the solicitor (acting for the buyer and/or lender) certifying that the property’s title, condition, and security meet the lender’s requirements for loan drawdown, subject to any disclosed qualifications or issues.

If acting for both buyer and lender becomes inappropriate—due to a confirmed or likely conflict of interest—the solicitor must cease to act for one or both parties and inform each accordingly.

Pre-completion searches include the OS1/OS2 priority search at Land Registry (to 'freeze' the register and establish a 30-working-day period to make registration secure for buyer and lender), and K16 bankruptcy-only searches (on all individual buyers or borrowers), to spot any intervening changes or events that could undermine the transaction or the charge’s registration.

Key Term: Priority Search (OS1/OS2)

A priority Land Registry search (OS1 for the whole, OS2 for part) which grants a 30-working-day window for completion and registration of the buyer’s and lender’s transactions, unaffected by subsequent entries.

Key Term: Bankruptcy-Only Search (K16)

A bankruptcy search conducted against an individual borrower at the Land Charges Registry to ensure they are not, or have not become, bankrupt before or during the transaction.

Worked Example 1.1

Sarah is buying her first home for £250,000 with a 10% deposit from savings and a 90% mortgage. Her solicitor also acts for the lender, MegaBank PLC. During the investigation of title, Sarah tells her solicitor that her parents are gifting her an additional £10,000 towards the purchase, but she doesn't want the bank to know as she fears it might affect her mortgage offer.

Answer:

The solicitor must explain that lender rules and the UK Finance Mortgage Lenders’ Handbook mandate disclosure of all deposits, gifts, and contributions toward the purchase price. The £10,000 gift is material, and failure to disclose would be a breach of professional, statutory, and regulatory duty (and could amount to mortgage fraud). If Sarah withholds her consent to disclosure, the solicitor must withdraw from acting for the lender (and, potentially, both clients).

Worked Example 1.2

A solicitor is acting for joint buyers, Mr and Mrs Jones, and their lender. Mr Jones runs a business, and the mortgage is being raised on their jointly owned home to fund the business. The lender requires both to sign the documents. Mrs Jones appears hesitant.

Answer:

The solicitor must ensure that Mrs Jones is making a fully informed, voluntary, and unpressured decision. Independent legal advice may be mandatory under Etridge principles, especially if Mrs Jones is providing security for a loan from which she derives no benefit. If the solicitor cannot confirm true consent after a private meeting and explanation, they must insist on independent legal advice and, failing that, refuse to act further.

Worked Example 1.3

A lender’s offer includes a £5,000 retention, conditional on a satisfactory survey and remedial work. The chain is ready for exchange.

Answer:

The solicitor must not allow exchange unless the client can fund completion in full, even though the lender will not release the retention immediately. Full disclosure to the client and lender is essential, with a written undertaking to provide evidence that the retention condition will be met post-completion.

Worked Example 1.4

A developer offers a newbuild house with a “5% gifted deposit” and other incentives, but the mortgage offer is based on the full price.

Answer:

All incentives, reductions, and gifts (such as developer contributions or cashback) must be disclosed to the lender. Lenders may adjust the loan, request a revised valuation, or refuse to proceed; non-disclosure may constitute professional misconduct. The contract and purchase price must be adjusted and all such arrangements transparently reported.

Worked Example 1.5

A buyer plans to use a regulated bridging loan to fund completion, intending to repay from the sale of an existing property. There is uncertainty in the chain.

Answer:

The solicitor must carry out enhanced diligence regarding the bridging loan, confirm first charge priority, establish a credible exit strategy, and clearly warn the client of risk and cost. Lender consents and registration procedures must be strictly followed.

Funding the Deposit

Proper management of deposit funds is not only a safeguard against chain risks but also a core lender requirement. Standard contracts assume a 10% deposit at exchange, but in practice reduced deposits are commonly agreed, especially where buyers are also sellers in a chain and funds are linked to an onward purchase.

Where a reduced deposit is accepted, the contract must include a special condition specifying the arrangement; otherwise, under standard conditions, the buyer may be required to 'top up' to 10% in the event of a notice to complete following breach.

Where deposits are provided in whole or part by third parties (family, employer, builder), transparent documentation and disclosure are essential. This includes gift letters for non-repayable contributions, loan agreements for repayable funds, and appropriate declarations required by the lender's Handbook.

Key Term: Stakeholder Deposit

Where the deposit is held by the seller’s solicitor as stakeholder, funds are released only on completion and refunded to the buyer if the seller defaults—giving buyers additional protection.

Key Term: Agent Deposit

If the deposit is held as agent for the seller, the seller may access funds before completion (for example, for use in an onward purchase), increasing the risk to the buyer. The default position is stakeholder unless otherwise agreed or there is a related purchase.

Chain-linked and simultaneous transactions may create complications with deposit flows; the solicitor must ensure all parties and lenders are informed and that deposit-tracing is robust to avoid money laundering and mortgage fraud risks. Misuse of deposits or failure to comply with contractual terms exposes both client and solicitor to significant legal liability.

Special caution is required where builder incentives or cashback are involved, as these effectively reduce the "real" price payable and must always be disclosed to the lender. If funds are received or held from a third party, a thorough anti-money laundering check is mandatory.

Regulatory Perimeter: Generic Advice Only

Solicitors are expressly limited in the provision of mortgage or financial advice unless they (or their firm) are properly FCA-regulated. Under FSMA 2000 and SRA rules, solicitors may only provide generic information about mortgage types (for example, describing the structure and main features of repayment or interest-only loans, fixed- or tracker-rate products), but may not recommend, arrange, or direct a client to any specific mortgage product or lender unless acting under, and strictly within, the 'professional firms exemption'.

Key Term: Professional Firms Exemption

An exemption under section 327 FSMA 2000, allowing solicitors to undertake regulated activities (such as generic mortgage advice or arranging execution of a product) where this is incidental to their legal work, they do not receive commission, and they comply with SRA Financial Services rules.

If a client requests product-specific advice, or a recommendation, the solicitor must refer the client to an FCA-authorised financial adviser. Where a solicitor inadvertently gives product-specific advice, arranges the sale, or purports to act outside the exemption or without proper authorisation, disciplinary and criminal consequences may follow.

Solicitors must make and retain appropriate file notes of all advice given, ensure all required regulatory disclaimers are provided in their report to the client, and confirm the limits of their advice in formal engagement documentation.

Pre-Completion Essentials for Mortgage-Backed Purchases

The period between exchange and completion is critical for execution of all procedural, compliance, and registration matters required for the buyer to acquire good legal title and for the lender’s security to become perfected.

Key requirements include:

• Carrying out all pre-completion registration searches: OS1/OS2 for land registry priority (conferring a 30-working-day protection), and K16 bankruptcy searches (on each individual borrower).
• Submission of the Certificate of Title to the lender, accompanied by all supporting documents (copy executed mortgage deed, search results, insurance schedule), with sufficient notice (usually no less than five working days before completion) to arrange funds drawdown. Where acting for both buyer and lender using the standard form, the certificate confirms the property is a suitable and good marketable title, with arrangements to register the lender’s charge.
• Verifying insurance is in place from exchange (since risk passes to the buyer), advising both buyer and seller to maintain cover until completion, and—where necessary—placing additional or dual insurance policies to satisfy lender and practical requirements.
• Ensuring that all lender-specific conditions, special requirements, or retentions have been disclosed, satisfied, or completion arrangements have been made (e.g., for builder warranties or indemnity insurance).
• Confirming that all adult occupiers not party to the mortgage have signed properly witnessed occupier’s consent forms, and—where required—that independent legal advice has been given.
• Coordinating with the seller’s solicitor to verify that all undertakings regarding discharge of existing mortgages will be fulfilled, evidenced by appropriate documentation post-completion.
• Accurate and timely calculation of completion statements, client money requirements, and routine compliance with anti-money laundering procedures.

On completion itself, the mortgage deed and transfer are dated, funds transferred, undertakings honoured for repayment and discharge of existing charge(s), and—critically—the application must be made to Land Registry to register both the transfer and new charge within the 30-day priority period. For corporate buyers/mortgagors, the new charge must also be registered at Companies House within 21 days to retain enforceability.

Key Term: Companies House Charge Registration

Registration of a company’s mortgage charge within 21 days: failure to do so voids the charge as against a liquidator, administrator, or other creditors, endangering the lender’s security.

Key Term: Land Registry Registration

Application for registration of disposition (using form AP1 for registered titles or FR1 for first registration of unregistered land) must be made within 30-working-day priority created by OS1/OS2.

Any failure in the above steps risks loss of priority and lender security, as well as claims in professional negligence.

Completion and Post-Completion

Once completion is achieved:

• The buyer’s solicitor checks received documents for accuracy and validity.
• SDLT (in England) or LTT (in Wales) is calculated and paid to HMRC or WRA within 14 or 30 days, respectively, with evidence of compliance accompanying the registration application.
• The mortgage charge is registered at Companies House (company borrowers only).
• The transfer, new charge, and all supporting documentation is lodged at Land Registry using the appropriate forms within the OS1/OS2 priority period.
• The client and lender receive confirmation from Land Registry of successful registration.

Worked Example 2.1

The buyer is a limited company acquiring commercial premises with the assistance of a high street mortgage. The solicitor is instructed to complete both the Land Registry and Companies House filings and to ensure the lender’s security is not prejudiced.

Answer:

The solicitor must register the legal charge at Companies House within 21 days using form MR01, pay the fee, and confirm registration with Land Registry. The Land Registry application (AP1) must be lodged within the priority period of the OS1/OS2 search, accompanied by the evidence of both discharge of any old mortgages and the new mortgage documents, the transfer (TR1/TP1), SDLT certificate, and fee.

Summary

• The majority of property purchases in England and Wales are funded by a combination of buyer equity and secured debt, usually in the form of a mortgage from a bank or building society, but frequently involving alternative finance, government schemes, or bridging loans.
• Lenders’ requirements extend well beyond a simple valuation, encompassing detailed legal investigation of title, property structure, planning/building control, lease terms, ground rents, and service charge obligations.
• The nature and type of mortgage (repayment, interest-only, hybrid, offset, flexible, or Sharia-compliant) must be carefully matched to the buyer and property circumstances, together with a thorough appreciation of repayment terms, interest rate options, and associated costs/risks, including early redemption penalties and linked insurance or investment products.
• Solicitors are strictly limited in the provision of financial advice, with product-specific advice and the arrangement of mortgages requiring FCA authorisation or operation under the narrow 'professional firms exemption'; generic advice and explanation of loan types and features are allowed, but recommendations and product placements are not.
• Where acting for both borrower and lender, solicitors must meticulously manage conflicts of interest, ensure transparency, and immediately disclose any information that affects the lender’s security or appetite to lend (including non-arm’s-length funding, incentives or price reductions, title defects, and planning/building regulation issues).
• Certification and registration steps, including issue of a Certificate of Title, pre-completion official and bankruptcy searches, completion of mortgage deed and transfer, execution of insurance and occupier waivers, and timely registration of the transfer and charge at both Land Registry and Companies House, are essential to perfect the lender’s and buyer’s interests and avoid unregistered or unenforceable transactions.
• All parties must understand and accept the risk allocation from exchange onward—principally, that risk, and the necessity to insure, passes to the buyer; and that contractual deposit arrangements and holding mechanisms (stakeholder or agent) have full legal significance and implications in the event of delayed or defaulted completion.
• Where problematic issues arise—such as title defects, restrictive covenants, outstanding planning/building enforcement, inadequate deposit funding, or non-standard arrangements with new-builds, shared ownership, or bridging finance—solicitors must take action to secure indemnity insurance, obtain lender consent, or, if necessary, make a qualified Certificate of Title or refrain from exchange pending resolution.

Key Point Checklist

This article has covered the following key knowledge points:

• The principal sources and mechanisms for property finance in the UK, including regulated mortgage products, employer loans, private lending, builder incentives, government-backed schemes, and bridging loans.
• In-depth examination of solicitor obligations to investigate and report on title, property, planning, building regulation, construction risk, and leasehold nuances.
• Overview and analysis of main mortgage product structures: capital and interest (repayment), interest-only, hybrid, offset, flexible, part-and-part, and Islamic finance arrangements; and the respective client suitability and risk exposures.
• Detailed consideration of interest rate options (fixed, tracker, discount, capped/collared, SVR), ERCs, penalties, linkage to insurance or investment products, and the implications of rate adjustments, redemption, and portability.
• Understanding of the legal, regulatory, and SRA restrictions on the provision of mortgage and financial advice, including the professional firms exemption under FSMA 2000, circumstances for lawful referral, and risk management of generic versus product-specific advice.
• Emphasis on solicitor’s professional conduct duties and risk management in dual representation, conflict-of-interest protocols, confidentiality, and the prompt reporting of adverse title conditions, unusual funding sources, or incentivised transactions.
• Guidance on the use and substance of the UK Finance Mortgage Lenders’ Handbook (and lender-specific parts), formal instructions, and the significance and delivery of the Certificate of Title.
• Pre-completion routines: carrying out the right searches (OS1/OS2, K16), arranging title insurance and occupier waiver documentation, calculating settlement figures, and ensuring all practical and technical arrangements are made for timely completion and registration.
• Management and safeguarding of deposit funds, including the legal and practical differences between holding as stakeholder and as agent, and the importance of contractual arrangements in chain and linked transactions.
• Handling the legal and practical features of government and regional purchase schemes, shared ownership, complex staircasing, Help to Buy charges, and consent-based or complex title documentation.
• End-to-end comprehension of the processes (and consequences of error or delay) for completing registration at both Land Registry and Companies House.

Key Terms and Concepts

• Mortgage
• Loan-to-Value (LTV)
• Mortgage Offer
• Repayment Mortgage
• Interest-Only Mortgage
• Fixed-Rate Mortgage
• Tracker Mortgage
• Discount Mortgage
• Standard Variable Rate (SVR)
• Early Repayment Charge (ERC)
• Bridging Loan
• Occupier’s Consent
• Priority Search (OS1/OS2)
• Bankruptcy-Only Search (K16)
• Standard Mortgage
• UK Finance Mortgage Lenders’ Handbook
• Certificate of Title (CoT)
• Stakeholder Deposit
• Agent Deposit
• Professional Firms Exemption
• Sharia-Compliant Finance
• Land Registry Registration
• Companies House Charge Registration
• Restrictive Covenant