What is a Redemption Statement?

A redemption statement is a crucial document in the conveyancing process, especially when selling your property or settling your mortgage.

It outlines the total amount you owe on your mortgage, including the outstanding balance, any accrued interest, and additional fees such as early repayment charges (ERC) or administration costs.

If you are in the process of selling your property or preparing to move, understanding what a redemption statement is and how it fits into the conveyancing journey is essential.

In this blog, we will explore what a redemption statement is from a conveyancing perspective, the process of obtaining one, and why it plays such an important role in ensuring the smooth sale or transfer of your property.

What is a Mortgage Redemption?

From a conveyancing viewpoint, mortgage redemption refers to the process of paying off the outstanding balance of your mortgage to clear any legal claims the lender has over your property.

It is a critical step in completing the sale or transfer of a property, as it ensures that the buyer receives a property that is free from any financial encumbrances.

If you are selling your home, your conveyancer will need to ensure that the mortgage is fully paid off before the sale can complete. This is done by obtaining a redemption statement from your lender, which details the exact amount you need to pay to redeem (or settle) your mortgage.

What is a Redemption Statement?

A redemption statement is a document provided by your mortgage lender that specifies the total amount required to pay off your mortgage, including any associated fees and interest. It’s an essential part of the conveyancing process when selling your property because it provides a breakdown of the financial commitments that must be met to release your property from the lender’s charge.

A redemption statement will typically include:

• Outstanding mortgage balance: The remaining capital that needs to be repaid.
• Accrued interest: Interest that has accrued since your last payment.
• Redemption fees: Fees that may apply for paying off your mortgage early, such as early repayment charges (ERC).
• Administration fees: Charges for handling the redemption process and updating legal records.
• Daily interest adjustments: Because interest accrues daily, the redemption statement is usually valid for a short period (often around four weeks), after which a new statement will be needed to reflect any additional interest.

Related:

Guide to Remortgage Conveyancing

What is the New Build Purchasing Process?

Do I Need a Conveyancer for a Remortgage?

Why is a Redemption Statement Important in the Conveyancing Process?

From a conveyancing perspective, obtaining a redemption statement is essential for the successful completion of a property sale. The redemption statement provides clarity on the total financial settlement required to pay off your mortgage and ensures that there are no surprises on completion day. Here are some of the key reasons why this document is so important:

1. Ensures a Clean Transfer of Title

Before a property sale can be completed, the mortgage must be cleared so that the buyer can receive a property free of any financial obligations. The redemption statement allows your conveyancer to confirm the exact amount that needs to be repaid to your lender in order to release their legal charge on the property.

2. Prevents Delays in the Sale Process

Having an accurate redemption statement is crucial to ensuring that there are no unexpected delays in the conveyancing process. Without it, your conveyancer cannot finalise the sale because the lender’s interest in the property will still be registered with the Land Registry. If the redemption figure is inaccurate or if interest accrues beyond the statement’s validity, this could cause delays and additional costs.

3. Financial Transparency

Selling a property involves many financial transactions. A redemption statement offers transparency about what you owe your lender, preventing confusion or miscalculations. It allows you to plan accordingly, particularly if there are early repayment charges or administration fees that could affect your final balance.

4. Required for Completion

The conveyancing process requires all financial settlements to be in place before completion. The redemption statement outlines exactly how much needs to be paid to your lender, which is vital for your conveyancer to ensure that the sale proceeds can be distributed correctly, and the property can be legally transferred to the new owner.

How Do You Obtain a Redemption Statement?

In the context of conveyancing, obtaining a redemption statement is a straightforward but necessary part of the sale process. Your conveyancer will typically advise you to request this document early on in the conveyancing timeline to avoid delays. Here’s how to go about obtaining a redemption statement:

1. Contact Your Lender

To request a redemption statement, you’ll need to contact your mortgage lender. Most lenders offer several ways to do this, including:

• Online: You can usually request the statement via online banking.
• Phone: You can call your lender’s customer service to ask for the document.
• In-person: If your lender has physical branches, you may be able to request a redemption statement in person.

Once requested, your lender will typically send the redemption statement to you or directly to your conveyancer within a few days.

2. Ensure Timely Payment

Because interest accrues daily, redemption statements are usually valid for only a limited period, typically four weeks. If the mortgage is not settled within this timeframe, a new redemption statement will be needed, reflecting the additional interest. This can sometimes cause delays in the sale process, so it’s important to ensure that everything is in place for a timely settlement.

What Happens Next? The Role of Your Conveyancer

Once your redemption statement has been received, your conveyancer will play a pivotal role in ensuring that the mortgage is paid off correctly and the property is transferred without any outstanding debts attached to it.

Here’s what happens next in the conveyancing process:

1. Review the Redemption Statement

Your conveyancer will review the redemption statement to ensure that all figures are correct, including any fees or penalties for early repayment. They will check that the amount matches your mortgage balance and that all costs are accounted for.

2. Transfer of Funds

When the sale of your property completes, the buyer’s solicitor will transfer the purchase funds to your conveyancer. Your conveyancer will then use these funds to pay off the amount specified in the redemption statement, settling your mortgage with the lender.

3. Removal of the Lender’s Charge

Once the mortgage is paid off, your conveyancer will arrange for the lender to remove their charge from the property’s title at the Land Registry. This is a legal requirement, as the property cannot be sold with an outstanding mortgage attached to it.

4. Final Settlement

Any remaining funds from the sale, after paying off the mortgage and covering any associated fees (such as conveyancing fees or estate agent costs), will be transferred to your bank account.

Fees Associated with Mortgage Redemption

When redeeming your mortgage as part of the conveyancing process, you may encounter several fees, which will be detailed in your redemption statement. Some of the most common fees include:

1. Early Repayment Charges (ERC)

If you are paying off your mortgage before the end of a fixed-rate or discount period, your lender may charge an early repayment charge (ERC). This is typically a percentage of your remaining mortgage balance. For example, if you have a five-year fixed-rate mortgage and redeem it in year two, you might face an ERC of 2–3% of the outstanding balance.

2. Mortgage Exit Fee

Lenders may charge a mortgage exit fee, also known as a deeds release fee or admin fee, to cover the cost of closing your mortgage account and updating the Land Registry. Mortgage exit fees typically range from £50 to £300 depending on the lender.

3. Additional Interest

Because interest accrues daily, there may be additional interest due if there is any delay between receiving the redemption statement and making the final payment. Your conveyancer will handle this adjustment if required.

4. Solicitor’s Fees

You will need a conveyancer to manage the legal aspects of mortgage redemption, including ensuring the title deeds are updated and the lender’s charge is removed from the property’s title. Conveyancing fees can vary but generally range between £500 and £1,000, depending on the complexity of the transaction.

Early Mortgage Repayment Considerations

If you're planning to pay off your mortgage before the end of your term, it’s important to consider the implications of early repayment.

Many lenders charge early repayment fees, which are typically outlined in the redemption statement. Understanding these costs can help you decide whether it’s financially beneficial to repay your mortgage early.

In some cases, depending on the size of the charge and your future plans, it might be worth waiting until the end of your fixed term to avoid additional fees. Your conveyancer can help you calculate whether early repayment makes sense for your situation.

How Mortgage Exit Fees Affect Your Final Balance

In addition to early repayment charges, many lenders impose a mortgage exit fee, also known as a deeds release fee or account closure fee. This fee covers the administrative costs of closing your mortgage account and removing the lender’s charge from the title deeds.

While the cost can range from £50 to £300 depending on the lender, it is a necessary expense when paying off your mortgage. It’s important to review your redemption statement to ensure that this fee is included and plan for it in your final budget. Your conveyancer will handle the formalities of paying off your mortgage and ensuring that the lender's charge is removed.

Next Steps After Mortgage Redemption

Once you have paid off your mortgage and the lender's charge is removed, it’s important to ensure all your documents are in order. After the mortgage redemption process is complete, your conveyancer will confirm that the Land Registry has updated the property title to reflect that it is now free from any charges.

Keep any correspondence from your lender confirming that your mortgage has been settled, as you may need these documents for future reference, particularly if you sell the property again. If you’re unsure about any steps in the process, your conveyancer can guide you through each stage to ensure everything is handled correctly.

How to Handle Multiple Mortgages

If your property is subject to more than one mortgage, obtaining multiple redemption statements from each lender will be necessary to clear all charges on the property.

This can complicate the conveyancing process, as each lender will need to be paid in the correct order, based on their secured interest in the property. Your conveyancer will manage these payments and ensure that all lenders’ charges are removed from the title. It’s essential to inform your conveyancer early if you have multiple mortgages to avoid any delays in the sale process.

The Role of the Land Registry in Mortgage Redemption

The Land Registry plays a crucial role in the mortgage redemption process. Once your mortgage is paid off, your conveyancer will submit the necessary paperwork to the Land Registry to remove the lender’s charge from the property’s title.

This process ensures that the property is free from any financial claims, making it easier to sell or transfer ownership in the future. Your conveyancer will handle the submission of these documents, ensuring that the legal title is updated accurately and promptly.

Conclusion

A redemption statement is an essential document for anyone selling a property or paying off their mortgage as part of the conveyancing process. It provides an accurate breakdown of your outstanding mortgage balance, including any fees or charges that need to be settled to fully clear the mortgage.

From a conveyancing perspective, obtaining and acting on a redemption statement is crucial for ensuring a smooth and timely property transaction. By working closely with your conveyancer, you can ensure that your mortgage is paid off correctly, the lender’s charge is removed, and the property is transferred without any outstanding debts.

Whether you are selling your property or simply paying off your mortgage, understanding the role of a redemption statement is key to completing your conveyancing process with confidence.