The UK’s millions of borrowers may feel they understand how their mortgages work but they could be in for a big surprise.
Most lenders in the UK offer loans so that people can buy residential property, whether this is for their own use or as buy to let landlords.
The mortgage acts as an additional security measure for the advance the borrower receives. Like most people, the borrower probably thinks the security is the property itself.
However, as Bruce Lamb, spokesperson for Mortgage Securitisation Claims (MSC) explains, this is not the case.
“The property is the underlying security, but the main security is the borrower’s pledge to pay the loan back over a defined length of time.”
“This pledge is, essentially a promissory note. It is a negotiable security and it becomes an asset on the lender’s balance sheet, before any money is released.”
The value of this asset is based on the amount the lender loans to the borrower plus the total amount of interest payable over the term of the mortgage. In other words, as an asset, it is worth a lot more than the amount borrowed, giving the lender a level of capital protection.
Here’s the crux of the matter:
- The mortgage lender can do what they want with this asset
- They can transfer, assign or sell it
- They can do this without the borrower’s knowledge or consent
“Remember this is not the mortgaged property, it is the negotiable security to which the mortgage is attached.”
“This is what is known as mortgage securitisation, and it has been a common practice among many banks and building societies to allow them to lend more and more money.”
Power of Attorney
When a borrower signs on the dotted line they are doing more than accepting a loan from their lender.
“Regardless of any terms and conditions, by signing, the borrower always grants the lender an irrevocable power of attorney, allowing the lender to do anything in the name of the borrower and, it will stay in place until all money owed to the lender by the borrower has been paid”
Bruce Lamb, spokesperson for Mortgage Securitisation Claims
In effect, this power of attorney makes the negotiable security sellable, without any further consent or knowledge of the borrower.
“The lender can sell the promissory note with the mortgage attached to someone else without the borrower having any say in it. The new owner of the debt can, in many cases set new loan terms should they want to, including interest rates.”
This new owner will be undisclosed, while the borrower unknowingly continues to pay their monthly mortgage to the original lender, who now acts as a ‘collection agent’ for the new owner.
“A lender will always sell the security and mortgage for the outstanding balance of the loan account on the date of the sale, and will most probably make a profit of around 20% through mortgage securitisation, with no benefit to the borrower.”
“The borrower has granted their power of attorney, as such, they have no control over the process, but in principle they have a valid contract to continue to pay back the loan regardless of whether they are legally bound to do so, or not.”
What Should Borrowers Do?
Borrowers need not feel like pawns in larger financial game. They may be eligible to make a mortgage securitisation claim against their lender.
Bank of England statistics show that as many as 80% of UK residential mortgages were securitised. What this means is that in the majority of cases the original lender has sold, transferred or assigned the mortgage and has therefore been paid in full.
This perhaps has implications for the borrower to be in a position to challenge the lender.
“To prove that a borrower has a claim comes down to two key things:
- Proving that securitisation happened
- Checking the paperwork, because if this has not been properly completed and processed, it could mean that the new owner of the mortgage is not entitled to receive continued payments from the borrower”
In these situations, there is a possibility that the borrower might then no longer have to continue to repay their promissory note to which the mortgage is attached. The mortgage is still valid, however, it is not enforceable.
“To determine if a genuine claim exists requires investigating what happened diligently, and knowing what to look for in the paperwork,” Bruce concludes. “Ultimately, it’s also about giving some sense of empowerment and control back to borrowers.”
To discover if you have grounds for a genuine claim, please contact Mortgage Securitisation Claims: