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Legal definition

Confused by the plethora of legal jargon in the mortgage industry or want to know what a legal term or practice means? Each month our panel of experts answer questions sent in by readers.

Eddie Goldsmith,
partner at Goldsmith Williams

Q: I’m keen to find out more about the shared ownership system and what advice I should be offering clients who approach me about this.

A: Shared ownership allows people to buy a share of a property (usually 50%) from a housing association and pay rent for the remainder. Overall, the shared ownership system works well and provides help for those who need it to enable them to buy a home. However, there are some important elements brokers should make their clients aware of upfront to avoid potential difficulties later on down the line:

– Buyers have the choice to pay Stamp Duty at the beginning of the process when they first buy a share in a property or at a later stage if they increase their share. By waiting until a later stage, when the property may have increased in value significantly, the higher amount to be paid could be problematic, depending on funds available. If they do not pay Stamp Duty at first and do not increase their share at a later date, they do not have to pay any Stamp Duty at all.

– The buyer does not own the property outright so the rights over the property are similar to a rental property – there must be consent for any alterations to the property from the housing association that part-owns it.

– If a person who has bought under shared ownership, marries and wants their spouse to be added onto the title, this must be approved by the housing association involved.

– The housing association also has the right to nominate a buyer in the event of sale in order to ensure that ownership of the home remains with those in need of affordable housebuying options. This could have a knock-on effect on the amount of time it takes the sale to go through.

– The buyer would not have the right to choose the firm providing building insurance for the property as housing associations usually like to keep this under their own control.

Caroline Havers,
partner at Salans

Q: Automated valuation models seem to be increasing in prominence – is this the future for all valuations?

A: AVMs certainly seem to be getting more than their fair share of coverage at the moment but they will never be a panacea for the industry. There’s an old lending adage about never deviating from the twin pillars – namely, affordability and physical security. There is certainly some truth in this and you’ll find that it will take some convincing for the majority of lenders to move away from this position. Lessons learned from the late 1980s and early 1990s have stuck in the memory of many lenders, especially those looking to securitise their mortgage books.

That’s not to say AVMs don’t have their place and much of the publicity surrounding them is linked to how they can not only speed up the process of a valuation but also fundamentally shift the offer up the supply chain to the desktop. But the majority of lenders accept that if a professional physically inspects a property not only is there a greater degree of confidence but there is also now culpability should something negative emerge later. There is also an argument that a physical inspection provides a stronger foundation in looking after the best interests of clients, which is obviously crucial. Although AVMs are flying high, physical inspections are there for a reason and that is to help protect everyone in the process.

Q: Do you think e-conveyancing threatens the high street legal firm I currently deal with?

A: Although the spirit of e-conveyancing isn’t going to appear like a deity in the sky to smite high street law firms, the move towards technology in an increasing number of areas is not going to make it easy for them. The role of the high street solicitor in performing a traditional conveyancing role will certainly change over time.

For many reasons the provision of this service may not fit within their future business models. We are entering an era where the use of technology in conveyancing will no longer provide a competitive advantage but instead becomes an expectation and it is when you don’t have it that you stand out from the crowd (and not in a good way). This can be seen in initiatives including the greater use of electronic communication, new systems to upload contracts, a viewable version of the Land Registry and a new era of transparency of the transaction chain with the development of a ‘chain matrix’.

For many firms it is a case of ‘improve or else’ and for many the risk of failure may not lie with a lack of enthusiasm but with a dearth of funds. Investment in technology is easier for larger firms which can leverage economies of scale.

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