In most parts of the world, when someone takes out a mortgage, they’re required to provide the lender with some form of guarantee that the loan will be repaid.
In Scotland, a loan guarantee which uses heritable property as collateral is called a “standard security.” It is also colloquially known as a “charge” against a property. Standard Securities came into being with the Conveyancing and Feudal Reform (Scotland) Act 1970.
There are other types of charges that can be made against a property and properties may have more than one charge against them.
What is a Standard Security?
When you, as a buyer, take out a mortgage to buy a property in Scotland, you agree to give the lender a “standard security” over the property. This is a legal document that gives the lender rights over your property. It essentially means that while you own the property and can live in it, sell it, rent it out, etc., the lender has certain rights to the property until the mortgage is fully repaid.
Why is a Standard Security Important?
The primary purpose of the standard security is to protect the lender. If you fail to keep up with your mortgage payments, the standard security gives the lender the right to take certain actions. This can include taking possession of and selling the property to recover the amount you owe them. This process is known as “repossession.”
What rights does a Standard Security grant a lender?
In Scotland, when a lender has a standard security over a property, it grants them several rights to protect their interest in the event of borrower default or other specific circumstances outlined in the standard security document. Here are some of the key rights lenders have:
- Right to Repossess and Sell: One of the most significant rights granted by a standard security is the lender’s ability to repossess and then sell the property if the borrower defaults on the mortgage payments. The lender would usually only exercise this right after several attempts to rectify the situation with the borrower have failed.
- Right to Call in the Loan: The lender may have the right to demand the full repayment of the loan in certain circumstances, not just when the borrower defaults. For instance, if a borrower breaches any other terms of the mortgage agreement, the lender might have the right to call in the loan.
It’s important to note that while lenders have these rights, they are also bound by various responsibilities. They must follow specific procedures before exercising these rights, especially when it comes to repossession. The rules are designed to ensure fairness and that repossession, in particular, is genuinely a last resort.
Anyone taking out a mortgage in Scotland should carefully review the terms of their standard security document and consider seeking legal advice to understand fully their obligations and the rights of their lender.
Where are Standard Securities registered?
In Scotland, standard securities are registered with the Registers of Scotland in the Land Register of Scotland. The Land Register of Scotland has progressively been replacing the older General Register of Sasines, aiming for a more modern, map-based system of property registration.
When a lender grants a loan secured against a property, they will typically register a standard security in the Land Register, ensuring their interest in the property is officially noted and protected. This registration provides a public record of the lender’s secured interest and priority over the property in question.
If the property is still on the older General Register of Sasines, the standard security would be recorded there. However, with the ongoing effort to move all properties to the Land Register, most modern transactions (like the granting of a new mortgage) will often trigger a first registration in the Land Register if the property wasn’t already registered there.
When does a Standard security come into force?
A standard security comes into force when it is duly registered in the appropriate register, either the Land Register of Scotland or the older General Register of Sasines. Registration is vital; it’s the act of registration that provides the lender with the real right of security over the property. Without registration, the standard security wouldn’t provide the lender with the protection they’re seeking against the property.
Once registered, the standard security remains in place until the underlying debt (e.g., the mortgage) is repaid, at which point the lender typically discharges the standard security, or it can be removed in other specific circumstances defined by law.
What if there is more than one security against a property?
When there’s more than one security against a property, the order in which the securities were registered typically determines the priority of payments. The first security to be registered will usually have the first call on any proceeds from the sale of the property. Subsequent lenders would be next in line. If there isn’t enough equity in the property to cover all the debts, later lenders might not get all (or any) of their money back.
Key takeaways for First-time Buyers:
- A standard security is a legal mechanism to ensure that lenders can recover their funds in the event of non-payment.
- If you fall into arrears, the lender may use the rights in the standard security to repossess your property.
- Once you’ve fully repaid your mortgage, you can apply to the Registers of Scotland for the standard security to be discharged, meaning the lender no longer has any rights over your property.
If you’re unsure about any aspects of the home-buying process in Scotland, it’s always a good idea to seek advice from a solicitor or financial advisor familiar with Scottish property law.