A Guide to Mortgage Arrangement in Scotland

A look at some of the differences in Scottish mortgages, compared with England, including an arrangement in principle and the sealed bid system. Also in Scotland, a successful bid is legally binding. Mortgages in Scotland work on very similar principles to mortgages throughout the UK but there are slight differences in the property market to England that both buyer and seller must be aware of.
The most important difference to mortgages in Scotland is that before the buyer commences looking for a house they must arrange an “agreement in principle” for the mortgage. This is a simple process that involves the prospective buyer confirming with a prospective lender that they are prepared to lend up a certain amount as a mortgage. This is invariably linked to the buyer’s income, though, in the case of the buyer having a large capital deposit available for example this is not always the case. It is unlikely that any offer will be given any credence should the prospective buyer not have an agreement in principle in place.
Another quirk to the mortgage Scotland system that affects the process of house buying is that many sales are conducted under the sealed bid system. A seller will invite bids above a certain amount for a property and generally speaking the highest, properly financed bid will win; this underlies the importance of successfully arranging the agreement in principle. Furthermore, once the bid is successfully accepted it is regarded a legally binding offer. Both vendor and buyer are contractually obliged to accept the terms of the bid.
Due to the higher degree of contractual law involved in house buying and mortgages in Scotland both buyer and seller often conduct the entire process through solicitors. The buyer’s solicitor will contact the seller’s agent to officially note interest, the buyer will then have to confirm with their lender the property’s particulars and the total capital required. Once this is done the seller’s valuation can be confirmed and it is advisable for the buyer to arrange for a survey of the property – though this is not obligatory. Unfortunately it is not uncommon for a buyer to have to pay for surveys on more than one property, unlike the system in England.
When the closing date for offers arrives, the seller (or agent) accepts the highest properly financed bid. All the funds - via the mortgage - to buy the property need to be ready two weeks prior the date of entry. Title deeds are signed and monies transferred to the buyer’s solicitor the day before acquisition and on the day itself the seller’s agent will hand over the disposition document and keys – the mortgage becomes live and the property has been transferred.