Every month we go through our CeMAP forums at http://www.cemap123.co.uk and http://www.futuretrend.org.uk/vle/ to see what interesting queries have been posted. Students have access to this as part of their CeMAP Training programme. This is not only a fantastic resource for post classroom or distance learning CeMAP study but also provides a whole years access to an eco-system of like-minded folk. and if a tutor is too busy (as was the case with the query below…both CeMAP tutors David and Malik were teaching at the time); what you will find is that there are always other students ready to help;
This months CeMAP query comes from Richard currently studying CeMAP 2.
May be I’m being a bit thick here (!!) But I need help understanding the below please.
I need assistance with the deed of postponement, relating to second charges. In the notes it states:-
To set aside a 2nd mortgage, the original lender requires a deed of postponement that MUST be executed. The D.O.P will postpone the 2nd charge, and make it possible for the original lender to “Tack” a subsequent mortgage (third charge) to an original one.
Errm, can someone help my brain comprehend this please?
James recently completed his CeMAP Fast Track training with us and came to Richards rescue.
It’s all to do with the order that payments will be allocated in the event of a repossession, the first charge (original mortgage) will be paid first, then the second charge, and if there’s a shortfall then the second charge lender is at more risk of losing their money than the first charge lender.
If the original lender wishes to increase their lending, that will be added to the original loan, and will be repaid in the event of a repossession before the second charge lender receives their money, so they would need a deed of postponement from the second charge lender to make sure that they agree to that happening, if they believe that it would be too much of a risk then they won’t agree to it.
Original mortgage is £100,000, there’s a second charge loan for £25,000, totalling £125,000 borrowing secured on a £200,000 property.
The customer approaches their first charge lender to borrow an additional £50,000, this would take the total borrowing to £175,000, the original lender can be pretty confident that their £150,000 can be repaid if the house is repossessed, but if property values drop and the house can only be sold for £160,000 then the original lender will have received their money back, but the second charge lender will have lost £15,000.
The deed of postponement gives the second charge lender the chance to refuse to allow the additional borrowing to be tacked on to the loan that will be repaid before they are able to reclaim their money.
Hope that helps,
Give me a shout if you need any more clarification.