UK PROPERTY NEWS & ADVICE

A Short Introduction to Loans and Charging Orders

Sometimes it becomes necessary to borrow money in order to keep up with or pay off existing debts. When a consumer borrows money from a financial institution, such as a bank or building society, this is called an 'unsecured loan'. This is because the lender has not secured the loan itself directly to the equity in the borrower's home.

When money is lent as part of a 'secured loan', the financer has the power to reclaim the cost of the loan by forcing the sale of the property, in the event of default or inability to make the required repayments. For consumers it is favourable to get an unsecured loan over a secured loan for evident reasons.

In particular instances the lender may try to get a charging order against the house to guarantee their money. To get a charging order is not in the lender’s interests as it can take a long period of time to do so. When it does happen and the borrower fails to make payments repossession of property is often the outcome after recourse to the law.

Property is not the only collateral that charging order or a ‘charge’ can be applied to. Other funds and also stocks or shares can be designated by a court as payment for money owed, as well as an individual’s property. When a charge is laid against a property, this means that, in the event of the sale of the residence, the remaining monies have to be paid to the lender before the remaining equity is paid to the borrower.

Effectively, the charge puts the borrower further back in the 'queue' with regard to receipt of money for the sale of the property. Payment will first be made on any outstanding mortgage owed, then the amount owed on the charging order followed by the solicitor’s fees and then estate agent fees. Stamp duty is also a required payment and so the homeowner can have to handle significant financial loss when the remaining funds are finally received.

To get a charging order the lender must be granted one by the law courts. Lenders tend to only apply if agreed payments or a sequence of payments are not made as this will be a breach of the terms in the contract. The enforcement of a charging order can only be sanctioned through a hearing in a county court.

The county court will contemplate a number of things including; personal situation of the borrower, how the charging order will influence other creditors and additionally whether the borrower is disabled or suffers from a health problem.

The borrower can request that the court build a payment plan that takes into account their current and future financial situation, if the court has decided to enforce the order. The payments can be made directly from wages if the borrower is employed and the arrangement won’t affect their employment.

Prior to taking out an unsecured loan it is recommended to check one of the various online comparison sites for the best deals. The Motley Fool offers a dedicated Loan Comparison Centre for would-be borrowers to consult for the best and worst of the most recent policies around. At the time of writing two of the leading deals were the A&L personal loan offering an APR rate of 6.5% and Moneyback Bank personal loan offering an APR rate of 6.3%. Asda’s secured loans also represent a good deal at 7.6% APR, based on £25,000 paid back over 120 days.

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