Final mortgage payment in UK - this is what you need to know

Completing a mortgage is a big moment. This is because we are talking about a commitment that has concerned you for a very large part of your life - often for 20 or even 25 years. Once that moment has arrived, you will be freed from a large commitment and thus, very much closer to financial freedom - you will no longer have to pay either your landlord or your bank. In this article, however, we will not focus on what you can do with your spare cash. Instead, we will explain to you in detail what paperwork you need to take care of when the end of your mortgage is on the horizon.

Do I become the owner of the property by making the final mortgage payment?

This is a popular myth that completely misses the truth. The formal owner of the property subject to the mortgage is, from the outset, the person who makes the repayments - it is his or her name that is entered on the Land Registry, barring, of course, exceptions in the form of a Joint Mortgage. In fact, while the bank does indeed limit your freedom and can seize your property for debt, there is no ownership.

To be precise, the termination of the mortgage repayment means that the obligation you have taken out expires and with it, also the mortgage. This happens by operation of law, because according to one of the oldest principles of law, there cannot be a mortgage securing a mortgage that has already been repaid.

I have paid off the final mortgage payment - now what?

If you have already paid off the last instalment of your mortgage, you are no longer indebted to the bank, but the mortgage entry still appears on the Land Registry and must be removed immediately. However, the procedure by which this is done depends on the lender’s policy.

Usually, with the receipt of the last instalment, the bank automatically sends a DS1 form to the Land Registry, whereby the security interest on the debt is removed. However, there are some banks that do not do this automatically and require the customer to initiate it. Then the DS1 form has to be sent in yourself. If the end of the mortgage is due in the next few months, call the bank now and ask how the process of deleting the mortgage is to be carried out.

How do I send the DS1 form myself?

If you happen to be in a situation where the bank doesn’t want to do this itself, you need to take the appropriate steps to have the bank’s right to security over the property removed from the Land Registry. **It is important to note that the completion of the form itself must be done by the bank **- you, as the property owner, cannot do this yourself.

Even if your lender does not automatically issue a DS1 form, the completion of the repayment itself is recorded in the bank’s systems and you do not need to send any transfer confirmation or other documents to the institution. However, you should request the DS1 mentioned above and wait for it to be sent to you.

In the vast majority of cases, in addition to the completed DS1 form, you will also receive a document certifying that your mortgage has been completed. With these two letters in hand, you can now send a letter to Land Registry at:

HM Land Registry Citizen Centre PO Box 7806 Bilston WV1 9QR

In theory, it can take up to three months for the office to deal with your case. In practice, however, half of the applications are processed in just one day. As the completion of your mortgage requires the Land Registry to thoroughly verify your documentation, we recommend that you arm yourself with patience. It takes time for officials not to make a mistake.

How do I make sure the mortgage is deemed to have been repaid in all places?

First and foremost,** keep copies of all documents relating to your mortgage and close your mortgage account with your bank**. We strongly recommend that you keep everything related to your repayment for at least 12 months after your mortgage is completed.

To make sure that the mortgage has been cancelled, you can obtain the Title register from the government website. As an official extract from official records, such a document is a clear confirmation of the legal status of the property. However, it is information relating to the ownership status of your home, but not necessarily to you.

From a borrower’s perspective, it is important, the completion of your mortgage payment has also been recorded in the credit reference agencies’ systems. CRAs, or credit reference agencies, are entities you may have heard of when checking your credit score. In practice, they are primarily concerned with collecting data from a variety of entities, such as banks, lessors, energy companies and mobile operators, and based on your past actions, they assess whether you are a creditworthy borrower. If one of these agencies, for example Experian or Halifax, does not receive the relevant information from the bank, the completion of your mortgage will not be recorded in the system. As a result, your credit report will be generated in error, thus lowering your credibility in the eyes of other lenders.

If you are planning to take out another debt in the near future, such as a lease, mortgage or buy-to-let investment mortgage, it is essential that you ensure that each of the 3 main rating agencies (Equifax, Experian, TransUnion) has correctly recorded the completion of your mortgage repayments. This is because it is worth remembering that even a slight delay in repaying instalments drastically worsens your image in the eyes of lenders.

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What about insurance?

With a mortgage, banks virtually always require property insurance. This is no surprise to them - if the house were to suffer a fire or other damage, the lender would be at risk of incurring very serious losses.

However, once the final mortgage payment is made, the property owner is no longer obliged to maintain mortgage-related insurance. Although having a home insurance policy is, in our opinion, an act of common sense, it is worth looking for better solutions. The insurance required by banks is not always the best for the customer. Making your final mortgage payment is the perfect time to carry out an insurance review, which Extend Finance carries out completely free of charge.

So we suggest you don’t give up on your property insurance, but it’s worth tailoring it to your individual needs - perhaps extending cover at the expense of lowering the maximum sum insured?

How does making a final mortgage payment affect credit score and creditworthiness?

In these cases, things get a little more complicated.

On the one hand, the termination of a property mortgage is a very positive event from an affordability point of view - your Debt-to-Income ratio is significantly reduced, so you will be able to enter into another mortgage agreement or simply reduce your fixed expenses if necessary.

On the other hand, making your final mortgage payment means that you stop building up your credit score. Although it is rare for someone not to have other fixed expenses, such as, for example, mortgage instalments, insurance premiums and electricity bills, there may indeed be a situation where, by ending the repayment of your home, you will see a gradual decrease in your credit score. In our opinion, however, this is a very small cost compared to the benefits that financial freedom gives you.

When will I be able to sell a paid-off house?

Once the legal situation of the property has been sorted out. Due to the sometimes protracted proceedings in connection with the deletion of a mortgage, we recommend that you hold off on putting the property up for sale until you have received an extract from the Title Register.

Summary

If you have paid off your final mortgage payment, this means that you have freed yourself from a huge commitment to the bank. Congratulations!

Owning an unencumbered property is an unattainable privilege for many people. The money you’ve had to spend on paying off instalments up until now can now be used for whatever you want - with a financial surplus of a few hundred or even more than a thousand pounds a month, you have the opportunity to build up your retirement savings quickly, you can also treat yourself to a great holiday or fulfil another dream that isn’t necessarily cheap. We’re keeping our fingers crossed for the realisation of all these plans!