Mortgage Redemption Statements

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Redemption Statements FAQs

What is a Redemption Statement?

A redemption statement is a statement of the amount owing to repay a mortgage or other financial charge. The statement is binding on the issuer. It is also accepted as the lender's authority for the addressee to receiving the redemption monies and to settle the debt on behalf of the borrower.

Why is a Statement Needed?

A seller's solicitor is obliged to give an undertaking to the buyer's solicitor prior to completion, that on completion he will repay all charges registered against the property. Before he can give such an undertaking, he must have written evidence, supplied by the lender, of how much is needed to repay the debt as at completion, in the form of a redemption statement.

How is a Redemption Statement Obtained?

A redemption statement should be requested in writing (or in some cases online) direct from the lender. In the letter the solicitor should confirm that he is acting on the authority of the borrower. He should also confirm whether the statement is required for information only or for repayment. This will not matter to many lenders, but some (the Halifax is one) will automatically suspend collection of mortgage payments if they receive a request for a statement for repayment purposes. Most firms will have a standard letter which is used to request a statement - click here for an example.

When Should a Statement be Obtained?

A redemption statement should be requested at the start of the transaction for budgeting purposes and then a further request should be made, for repayment, once the actual completion date is known. The first statement should be forwarded to the borrower, who can check whether the amount to repay is around what he was expecting. If the amount is significantly higher (for example if there is an early repayment charge which he didn't realise was payable) this may affect his decision to proceed. Obviously if this does not come to light until contracts are exchanged it will be too late. Requesting a statement at this stage will also alert the solicitor if the seller is likely to be in negative equity, or if repossession proceedings have begun (since the redemption statement will contain an amount for legal fees, and will probably come from the lender's solicitors).

Beware of ordering too many statements however, since some lenders will add a charge to the mortgage account for each one issued.

When ordering the final redemption statement, you should allow sufficient time for the lender to produce it. The timescales vary greatly from lender to lender - Nationwide will usually supply one within minutes of the request, whereas The Woolwich say it is not possible to supply one in less than 72 hours.

Format of the Redemption Statement

All lenders set out their redemption statements differently - there is no set format. There are however certain key elements to look for in each case. These are as follows:-

Date the Redemption Statement is Valid On

When requesting a statement you must advise the date to which you wish it to be calculated. The "amount to redeem" being only valid on a particular day in most cases, since interest is charged daily. There are some lenders who charge monthly interest, in which case the statement will be valid until the end of the month in which it is issued.

Daily Rate of Interest

Most lenders charge interest on a daily basis, and on their redemption statements they will state the daily rate. This enables it to be used if the mortgage is redeemed after the repayment date, by adding one lot of daily interest for every day past the date that the statement is made up to. The redemption statement will not of course be valid indefinitely and it will usually say when it expires. If it does not, and you are going to be using the daily rate of interest, you must check with the lender that you are still able to do so. Most lenders will want you to send the redemption monies by telegraphic transfer/CHAPS, but where they accept cheques/BACS you must remember to calculate the redemption figure up until the date that they will cleared funds in their account, so for example if an account was redeemed by a cheque posted on Friday, it would not be banked until Monday and potentially would not clear until the following Monday, so 10 days' interest would need to be added.

Early Repayment Charges

You should watch out for early repayment charges. Many mortgage deals will include a tie-in period, where the lender will offer a reduced interest rate in return for the borrower agreeing to keep the mortgage for a certain number of years. If the borrower chooses to repay the mortgage within this period he may do so but will need to pay a penalty. These charges should be pointed out to a seller at the initial redemption statement stage - if he is not aware of it, or believes it has expired, this could have a serious impact on his decision to proceed with the sale.

Early Repayment Charges/Porting Mortgages

Where a seller is buying another property and is taking the new mortgage with his existing lender, the lender may agree that he can transfer the existing terms to the new mortgage. This is known as "porting". NOTE THAT THE MORTGAGE WILL STILL NEED TO BE REDEEMED. It will often be described to a borrower as "transferring your existing mortgage to your new property" which results in the misconception for many clients that the existing mortgage does not need to be redeemed, however in fact it does, and a new mortgage offer must be issued. The major advantage to the client is that any early repayment charge that would normally be payable will be waived in this situation. You must ensure however that either you obtain written confirmation from the lender that the early repayment charge may be deducted from the redemption monies or that you obtain a redemption statement which does not show the charge. The offer to waive the charge will be conditional on the new mortgage being for an equal or greater amount than the existing mortgage and the new mortgage completing on the same day as the old one is redeemed. It may also be permissible for the new mortgage to complete within 30 days (or sometimes longer) of redemption of the existing one however in this case the early repayment must be paid in the first instance and then reclaimed following completion of the new mortgage. Whether or not the lender insists on this, if you deduct the charge from the redemption amount you are effectively certifying to the lender that the new mortgage will complete before the deadline, and even where contracts for a purchase have been exchanged this is not an undertaking you can safely give. If the new mortgage fails to complete the lender will look to the solicitor who acted as its agent for reimbursement. Even where the new mortgage does complete simultaneously with redemption of the existing one the lender's procedures should be confirmed. Rather than allow the charge to be deducted, some lenders will insist on it being paid and will then refund it following completion, either as a cash payment to the client or by deducting it from the new mortgage balance. Failure to observe the procedures correctly will result in an inability to obtain the required discharge document and therefore a breach of the undertaking given to the purchaser's solicitor on completion.

Current Account/Offset Mortgages

Some lenders will offer a product whereby a client's mortgage account can be linked to his current account. This means that the balance owed on the mortgage is offset by the current account balance thus reducing the interest payable. Also, the mortgage account may have a credit facility.

The problem this creates for solicitors is that the balance required to redeem these accounts is constantly subject to change. If the borrower pays money into his account, the balance is reduced - if he makes a withdrawal it is increased. For this reason any redemption statement obtained in advance of completion in respect of such an account is not binding on the lender and cannot be relied upon. It will usually be necessary to contact the lender on the morning of completion and ask them to fax a redemption statement to you. At this point they should freeze the account so that the borrower cannot make credits, or more crucially debits, once the final statement has been issued. It is sadly not uncommon to be advised by the lender on the day of completion that a redemption statement may not be faxed until late in the afternoon, which of course will often be too late. The client should be forewarned, and advised that you may have to retain the entire sale proceeds if a statement is not supplied before your firm's deadline for transferring funds electronically.

Uncleared Payments/Payments Due

It is important to note that when requesting a redemption statement where a payment has been made before the redemption statement was produced but has not yet cleared, or if a payment is due between the issue of the statement and the redemption date, most lenders will disregard these payments when calculating the redemption figure. The result is that you may end up paying too much on redemption. This is not ideal of course but is not a disaster - the lender will refund any overpayment directly to the seller, usually within a few weeks of completion. There are a few lenders however who will take these payments into account. This is dangerous of course because if the payment does not subsequently clear, or is never made (and when close to completion clients will sometimes cancel their payments, assuming that it will be paid off on completion anyway) then this can lead to an underpayment on redemption, which of course means that the lender will not release the discharge document and ultimately the solicitor may end up having to settle the shortfall. It will remain a debt due from the client, however getting several hundred pounds from a client after completion can prove notoriously difficult. If dealing with a lender that does take future payments into account you should telephone them just before completion to check that any such payments have cleared. The redemption statement should make clear whether the lender takes future payments into account.

Regards

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