Third Party Chargors

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You may have been asked to give a legal charge over a property you own as security for someone else’s loan. This is a serious commitment. This guide explains what it means and what you will need to do so that the loan can complete without delay.

What a third party charge means

A third party legal charge means your property becomes security for the borrower’s loan. If the borrower does not repay, the lender can take possession of the property and sell it, usually without first having to pursue the borrower. Unless you also give a personal guarantee, your liability is limited to the property. The charge stays in place until the loan is repaid in full and the lender releases it. While it is in place, you will not be able to sell, let, alter or re-mortgage the property without the lender’s consent.

Take independent legal advice

You must take independent legal advice before you sign, and the lender will not complete without a certificate from your solicitor confirming that you have. Your solicitor must be at a different firm from the borrower’s solicitors and the lender’s solicitors. Your solicitor will also need to see you without the borrower present. If you own the property jointly, every co-owner must sign the charge and take advice.

Finding a solicitor is the step that takes longest, so please start straight away. When you contact a firm, explain that you need independent legal advice on a third party charge to a bridging lender, and that completion is close.

Tell the lender who lives at the property

The lender will need the name of every person aged 17 or over who lives at the property, whether or not they are family and whether or not they pay rent. Each adult occupier who is not a chargor will usually need to sign an occupier’s consent, agreeing that their right to live there ranks behind the lender’s charge, and to take their own legal advice. Please be complete. An occupier the lender does not know about can stop it enforcing its security, so this is often a condition of completion.

If the property is your home

If the borrower is an individual, and the borrower or a member of the borrower’s close family lives at the property or intends to, the loan would be a regulated mortgage, which we do not arrange. Many lenders go further and will only accept a charge over an occupied home where the borrower is a company, LLP or partnership. If the property is anyone’s home, please tell us at the start.

What you will need to provide

Please be ready to provide:

• your passport or photocard driving licence and proof of address, which the lender may require to be certified;
• the property’s title number and details of any existing mortgage, with a redemption statement or, for a second charge, the existing lender’s consent;
• the lease, if the property is leasehold, as the landlord’s consent may be needed; and
• buildings insurance with the lender’s interest noted (see our Insurance guide).

Please also tell us if you are or have been bankrupt, in an IVA or subject to a debt relief order, or if you will be signing under a power of attorney, a deputyship or as a trustee, as these need extra steps.

Signing the charge

The charge is a deed and must be signed in the physical presence of an independent adult witness. The witness must not be the borrower, a relative, a partner, or anyone connected with the transaction. Your solicitor is usually the best person to witness it. Please leave the document undated.

After completion

Keep the property insured and in good repair, and ask the lender before making any change to it or to who lives there. When the loan is repaid in full, the lender will release the charge and remove it from your title.