What is English mortgage in India?

July 14, 2023 . Home Buyer's Guide . 10 min read

An English mortgage is a type of mortgage in which the borrower transfers the ownership of the property to the lender as security for the loan. Unlike other types of mortgages, the borrower does not retain possession or ownership rights until the loan is fully repaid.

English mortgage is governed by the Transfer of Property Act, of 1882, in India. The Act outlines the rights and obligations of both the borrower and the lender in an English mortgage arrangement.

In an English mortgage, the lender becomes the legal owner of the property until the borrower repays the loan in full, including principal and interest. Once the loan is fully settled, the ownership rights are transferred back to the borrower.

English mortgage provides a high level of security for the lender, as they have legal ownership of the property. This helps mitigate the risk of default and provides assurance that the lender can recover the loan amount through the property in case of non-payment.

 Borrowers need to be aware of the implications of an English mortgage, such as temporary loss of ownership rights, and should carefully consider the terms and conditions before entering into such an arrangement.

Difference between English mortgage and normal home mortgage

In India, an “English mortgage” is a legal term that refers to a type of mortgage used in property transactions. It is also known as a simple mortgage. Here are the key characteristics of an English mortgage in India and how it differs from a regular home mortgage:

1.   Nature of security

In an English mortgage, the borrower transfers the ownership of the property to the lender as security for the loan. The lender holds the property until the borrower repays the entire loan amount. In case the borrower defaults, the property goes to the lender without legal intervention.

In contrast, a regular home mortgage, commonly known as a “mortgage by conditional sale” or “equitable mortgage,” does not involve the transfer of ownership. The borrower retains ownership of the property but grants a mortgage on the property to the lender as security.

2.   Legal title

In an English mortgage, the legal title of the property is transferred to the lender, while the borrower holds equitable title. This means that the borrower has the right to redeem the property by repaying the loan, and upon repayment, the legal title is transferred back to the borrower.

In a regular home mortgage, the legal title remains with the borrower throughout the loan term.

3.   Repayment

The borrower in an English mortgage is obligated to repay the loan amount in full to regain ownership of the property. If the borrower defaults on the loan, the lender can sell the property to recover the outstanding amount.

In a regular home mortgage, if the borrower defaults, the lender has the right to initiate foreclosure proceedings to sell the property and recover the loan amount.

4.   Documentation

An English mortgage requires the execution of a mortgage deed, which outlines the terms and conditions of the loan, including the transfer of legal title.

In a regular home mortgage, the borrower and lender enter into a loan agreement, and a mortgage deed or agreement is executed to create a mortgage on the property.

What are the benefits of getting an English mortgage for getting a home?

Here are some benefits of getting in English mortgage for getting your next home:

1.   Lower interest rates

Depending on the specific terms and conditions of the mortgage, an English mortgage may offer lower interest rates compared to other forms of financing. This can result in reduced monthly mortgage payments and overall interest costs.

2.   Easier loan approval

Since the lender holds the legal title to the property as security, they may be more willing to provide financing, even in situations where the borrower’s creditworthiness or income might not meet the stringent criteria of a regular home mortgage. This can make it easier for individuals with less favorable financial profiles to secure a loan.

3.   Access to higher loan amounts

The transfer of legal title to the lender can allow borrowers to access larger loan amounts. This can be beneficial for individuals who need substantial funding to purchase high-value properties.

4.   Potentially faster approval process

An English mortgage may involve a simpler and faster approval process compared to traditional mortgages. Since the lender has direct control over the property, they may have more confidence in the security of the loan, leading to quicker loan disbursal.

5.   Potential negotiation power

When the lender holds legal title to the property, they bear a higher risk in case of default. This situation might give the borrower some leverage for negotiating more favorable loan terms, such as lower interest rates, longer repayment periods, or flexible payment options.

It’s worth noting that the specific benefits and advantages can vary depending on the terms of the mortgage, prevailing market conditions, and the borrower’s individual circumstances. It’s important to thoroughly research and consider various financing options, consult with financial advisors or mortgage professionals, and carefully evaluate the terms and implications of any mortgage before making a decision.

What is the process of applying for an English mortgage in India for buying a home?

Here is an outline of the typical process involved in applying for an English mortgage in India:

1.   Determine eligibility

Assess your financial situation and determine your eligibility for a mortgage. Consider factors such as your income, credit score, existing debts, and down payment capability.

2.   Research and choose a lender

Research various lenders and compare their interest rates, loan terms, fees, and customer reviews. Choose a lender that suits your requirements and has a good reputation.

3.   Property search

Identify the property you wish to purchase and verify its legal and financial aspects. Ensure that the property has clear titles, is legally compliant, and meets your needs and budget.

4.   Loan application

Submit a loan application to the lender of your choice. Provide the necessary documentation, which may include identity proof, address proof, income proof (salary slips, bank statements, etc.), property documents, and any other documents requested by the lender.

5.   Property valuation and legal check

The lender will conduct a valuation of the property to determine its market worth and assess its eligibility as collateral. They may also perform a legal check to ensure the property’s legality and clear title.

6.   Loan approval

Once the lender verifies your documents and completes the property valuation and legal check, they will evaluate your loan application. If approved, you will receive a loan offer detailing the loan amount, interest rate, tenure, and other terms and conditions.

7.   Agreement and documentation

If you accept the loan offer, you will need to sign a loan agreement and provide the necessary documentation, such as property documents, NACH mandate setup, and additional security documents if required.

8.   Disbursement and registration

The lender will disburse the loan amount either directly to you or to the seller of the property, as per the agreed terms. Simultaneously, the property’s registration will take place, transferring the legal ownership to the lender as security for the loan.

Conclusion

English mortgage is a significant concept in the Indian property market. Knowledge of its legal framework, property ownership dynamics, and the relevance of understanding this type of mortgage is essential for both borrowers and lenders to navigate the lending process and mitigate risks effectively.