Land Registry form CH1

[Technogran]

I’m going to set up a private mortgage and am looking at the Land Registry forms I’ll need to fill in. I wonder if any one here could explain to me what section 8 of form CH1 is all about. It reads

“The Lender is under an obligation to make further advances and applies for the obligation to be entered in the register.”

(I did try to call the Registry for help but gave up after holding on for quite a while and getting fed up with the little recorded messages.)

Thanks in advance

[Clitheroekid]

This is to do with the practice known as `tacking'.

It's a complicated area of law, but basically if you are a lender and make a secured loan to someone the legal charge (mortgage) that you register against the property will take priority over any later charges.

However, many secured loans are made in instalments - a series of payments called `further advances' - and the question then arises as to what happens if a second charge is registered followed by the release of a further advance under the first charge.

The law says that in that situation the first charge will only have priority in respect of the amount outstanding at the time the second charge was entered into.

An example may help. In June 2018 I agree with you to lend you £1m to build a house, the loan to be secured on the house and to be released as the building progresses. Repayment is due in March 2019. My first advance to you is £250k in June 2018.

You then agree with another lender to borrow a further £500k and a second charge is created in September 2018 to secure that loan against the house, all of which is released on completion, so that you now owe in total £1m.

I then release a further advance to you in December 2018 of the remaining £750k. You now owe a total of £1.75k.

In March 2019 you default on the repayment and I enforce the loan agreement by forcing a sale of the house. Unfortunately, it only sells for £1.25k, so there isn't enough to cover both loans.

On the face of it I wouldn't be bothered, as my legal charge secures the whole of the £1m advance. But in practice I will initially receive only £250k, that being the amount outstanding at the time of the second charge. The lender secured by the second charge will then receive payment in full, after which my charge kicks back in so I receive the rest.

Of course this means that I only recover a total of around £500k out of the £1m I lent you.

The way I can get round this is by a process known as `tacking' - so called because it `tacks' the further advances to the original advance.

This is achieved by including in the legal charge a specific obligation to make further advances, and registering a notice to that effect at the Land Registry. The wording of the notice is as set out in your post.

The effect of this is to warn any potential lender who's considering lending to you that he will only be secured to the extent that I don't make any further advances to you. If I do, then they will take priority over the loan that he's secured.

I bet you wish you'd never asked!

[pochisoldi]

I have the “The Lender is under an obligation to make further advances and applies for the obligation to be entered in the register.” entry on my house.

Rather than the "staged release of funds" scenario explained by ClitheroeKid, this is due the fact that I have an offset mortgage where at any time I can borrow back money that I've paid off - every time I increase my overdraft it amounts to a further advance, and the LR entry gives that additional advance the same precedence as the initial mortgage (as explained by ClitheroeKid).

PochiSoldi

[Technogran]

Thanks so much Clitheroe Kid and Pochisoldi for taking the trouble to reply to me. I think I understand but I’ll need to reread carefully to make sure. Maybe I’m biting off a bit more than I can chew here but it looked quite a straight forward thing to do if you’ve got the time. I’ve got plenty of that as I’m retired. Also it’s all inter-family stuff. This is the situation. I’m divorced with three children in their late thirties. I have a decent pension, no mortgage and reasonable savings. My ex, on the other hand, still has an interest only mortgage of £110,000 on his flat and is on his uppers. We, (self and children), would like to pay off his existing mortgage and replace it with a private mortgage on his flat to be redeemed on his death. He has made out a will in favour of his three children. My ex is in his seventies and not in the best of health. This seemed like a neat solution and something we could easily do ourselves by filling in relevant land registry forms.