Homeowners in Scotland planning to remortgage with a new lender or take out equity release face new hidden costs following a little-known rule change that took effect earlier this month.
Remortgaging your property can save hundreds – sometimes thousands – of pounds each year, particularly if your property value has increased, your current mortgage is about expire or you can negotiate a better interest rate.
The cost savings of remortgaging, however, have to be measured against the exit costs and the fees associated with leaving your current mortgage. And it’s these remortgaging charges that for some homeowners will now be higher, following a change to Scottish property law that came into force on 1 April.
In some cases these increased fees could wipe out the gains from remortgaging or even make it unaffordable to remortgage. It is therefore important for property owners to be aware of these potential hidden costs when considering whether to remortgage.
So what’s changed? It’s all down to a change in the application process that may be technical, but which has real implications for homeowners. Scotland currently has two land registers in which all property in Scotland is registered: the older General Register of Sasines (established in 1617) and the newer Land Register of Scotland (established in 1979).
Approximately 40 per cent of all properties in Scotland are still registered in the Sasine Register. Some estimates suggest that this could translate to as many as 1,200,000 homes.
The newer Land Register is intended to replace the older Sasine Register, with all property in Scotland eventually being registered only in the newer Land Register. The benefits of this are clear – the Land Register is more efficient, quicker and easier to use, and the change will allow for digitalisation of title deeds and title plans and maps.
A number of years ago Registers of Scotland – the government body that operates the system of land registration in Scotland – began the process of transferring property in the Sasine Register into the Land Register. This process has, however, been slow and in 2012 new legislation gave extra powers to accelerate the process.
One of these new powers came into effect from 1 April, 2016, meaning it is no longer possible to register security for a mortgage loan in the Sasine Register. In other words, anyone who owns a property which is still registered in the Sasine Register cannot now take out a mortgage loan with a new lender without having to reregister their property in the Land Register.
Registers of Scotland have issued guidance on what will be required as part of this process (at https://www.ros.gov.uk/about-us/land-register-completion/closure-of-the-grs-to-securities-guidance). In addition to submitting the security deed (called a “standard security”) for registration, property owners also have to instruct solicitors to review their property title and submit an additional registration form, as well as existing title deeds and plans, to confirm the title to their property. This could involve a significant amount of additional work.
If your property is currently registered in the Sasine Register and you want to remortgage, you could therefore face having to pay increased legal fees to reregister your property in the Land Register in addition to any product fees payable to your new lender under the mortgage itself. This could amount to anything from an extra £400 to £800 or more (depending on the size and complexity of your property title).
In response to pressure from legal commentators, Registers of Scotland recently said that: “The 1.2 million property owners not on the Land Register will face no sudden or extra costs – they will only pay registration fees if and when they are transacting on their property”.
But this ignores the real practical cost to property owners of having to instruct solicitors to review their property title and submit title deeds and plans when re-mortgaging. The recent changes only affect those properties registered on the older Sasine Register. But how do you know if your property is in the Sasine Register or not? Well, as a very rough guide, if you have owned your property for 15 to 20 years or more, there is a good chance it will be registered in the Sasine Register (unless you live in the Glasgow area, where most properties are now in the Land Register). If in doubt, a solicitor will be able to confirm for you.
The effects of closing the Sasine Register to new security will, in fact, be felt by more than just borrowers looking to remortgage. Even a homeowner who has paid off their mortgage loan could be hit with surprise costs if they turn to equity release to unlock capital from their property if their home is registered in the Sasine Register.
A growing number of people aged 55 or over are turning to equity release – typically in the form of lifetime mortgages – to boost their retirement funds, clear debts and mortgages or help other family members with their finances.
These products let homeowners who are asset-rich but cash poor access the money tied up in their properties, often in the form of a lump sum payment. However, providers of lifetime mortgages invariably require security over the property and this means that the homeowner will face extra legal bills for reregistering their property in the Land Register if it is currently registered in the Sasine Register.
The benefits of having a simple, modern, digital Land Register for commerce in Scotland are clear. Nonetheless, the cost to some homeowners of achieving this could be a legal bill running to hundreds of pounds. If you are remortgaging – or considering doing so – checking whether your property is affected by the changes should be a priority.
Peter Alderdice is a banking and finance solicitor at Shepherd and Wedderburn LLP