Mortgages have a long history, which many attribute to the feudal system in the 12th century. The word mortgage is said to derive from the French for a ‘dead pledge’ – as opposed to a ‘live pledge’ which was the other type of pledge available in those times. A live pledge was one in which the income from the land was used to repay the loan, while a dead pledge was one in which the borrower had to find other means to repay the loan.
Although in modern times the term mortgage has become synonymous with the term loan, essentially a mortgage is – and always has been – a lien on a piece of land or property as security for a debt. Getting a mortgage meant transferring the title on a piece of land or property to the person who was lending the money. This was a conditional transfer. As long as the borrower repaid the loan, then the borrower retained the title once the debt was paid in full. If the borrower failed to repay the loan as agreed, then title to the property passed permanently to the lender.
In the 12th century, dead pledges were considered contrary to religious teachings as they promoted usury, and live pledges were much more popular. However, by the 14th century, live pledges had disappeared, leaving only dead pledges and paving the way for the mortgages we know today.
UK Mortgages Evolve
Another name for dead pledges is “mortgages by demise”, but this type of mortgage has not been available in the UK since the Land Registration Act 2002. Far more usual is the mortgage by legal charge, which has been in common use since 1925. Unlike the old type of mortgage, the title for the property or land remains with the borrower. However, the lender has enough rights over the property to ensure that the loan is repaid in case of a problem. This is why a modern mortgage lender has first charge over your property, and why getting a second mortgage will give that lender a second charge on the property.
There are several common terms that are used in mortgages. These include the creditor, who is the bank, building society or other lender who advances the money to buy your property. The creditor is also known as the mortgagee. The debtor, also known as the mortgagor or borrower, is the person who borrows the money from the lender. The mortgage deed records the fact that the lender has a legal charge over the borrower’s property, while the conveyance transfers the ownership of land or property from one person to another.
The UK mortgage industry has continued to evolve, with the addition of new mortgage products to expand the range available to borrowers. The UK has a well developed mortgage market, where home buyers can choose from standard mortgages, offset and flexible mortgages, Islamic home purchase plans and more.