With the recent decision by the Bank of England to raise their base interest rate to 1%, the highest rate it has been for 13 years, it will be interesting to see the impact this has on the property market as a whole, especially within Scotland.
Certainly, the anecdotal feedback we are receiving from clients and industry professionals at the moment is that the market does not appear to be dramatically slowing down, as one would predict when costs go up. This is supported by our own experiences at closing dates, with some clients missing out despite offering more than 20 or 30% above the asking price. Every area is different, but it appears that the key driver for the market, for the moment at least, is the lack of supply, (in particular of those types of “desirable” properties which when they do appear on to the market attract numerous interested parties) rather than the rise in interest rates. This could change should interest rates continue to rise, especially since there is often a delay between the increase and the impact on the property market itself.
Over the next year it will be fascinating to see whether the post lockdown has become the new normal, or if the market will return to pre-pandemic levels of activity. Watch this space. This will in turn have a knock-on effect on mortgages.
It is believed that over 16 million people (over 30% of the adult population) within the UK have a mortgage and of those, around 12 million people have a fixed rate mortgage. This means that they agreed a fixed rate at the time they took out their particular mortgage product and this will stay the same for a set period of time, depending on the terms agreed with their lender. For these people, the impact of the rise in interest rates is likely to be fairly minimal while still under their fixed term deal, however, for the remaining 4 million people who have mortgages with variable rates, this decision by the Bank of England could see a monthly increase of between £16-£25 on their mortgage payments which at its worst would be another £300 to find, per annum.
At some point, the mortgage over the property will be repaid and if this is at the end of the term or because you have managed to pay it off early, you may decide to pop that cork and indulge in some celebrating. However, just before you actually pop that cork and throw all of the mortgage paperwork on the bonfire, there is one more step you need to take.
Although the Lender may close the mortgage account once you have repaid all outstanding monies, they will not automatically remove their charge (called a “Standard Security”) from the title to the Property. This often causes confusion especially for those clients who have moved up from England where the Lender arranges for the charge to be removed automatically, once the mortgage has been repaid.
To remove the charge from the title in Scotland, a deed known as a Discharge of Standard Security has to be drafted and signed by the lender confirming repayment of all outstanding monies. Once signed, this deed is submitted by your Solicitor to Registers of Scotland, who will arrange for the charge to be removed from the title to your property.
It is important that this Discharge is dealt with at the same time as the mortgage is repaid because it can get more complicated as the years pass, firms change names/merge or are acquired by other firms and tracking them down can be tricky…unbelievably, there will be some people starting out in the legal profession who will not be familiar with the names of Northern Rock or Midland Bank …at one-time, high-street staples along with Woolworths and C&A.
Another issue is that until the Standard Security is discharged, the lender can still take enforcement of their charge over your property, should you default on any other borrowing you have with them. So if you do not pay a personal loan, and the Security is not discharged, the lender can, theoretically, repossess your home to make payment of the debt. If that isn’t enough motivation to Discharge the Security, I don’t know what is.
The other complication is that as the years pass the Lender will retain fewer and fewer details about the account. This is why you should speak to a Solicitor as soon as you have paid off your mortgage because they can assist you with arranging for the discharge of the mortgage from the title so that you can celebrate in peace.
Thinking of buying or selling within Scotland, please contact a member of the Blackadders Residential Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
