Deed of Postponement Explained: Key for Borrowers

Deed of Postponement Explained: Key for Borrowers I have seen a few clients talk to me recently about needing a lender to agree to a Deed of Postponement. My follow up question always begins with explaining a Deed of Postponement. I then discuss how it works and why we often need lenders to agree to […]

August 8th, 2024

Deed of Postponement Explained: Key for Borrowers

I have seen a few clients talk to me recently about needing a lender to agree to a Deed of Postponement.

My follow up question always begins with explaining a Deed of Postponement. I then discuss how it works and why we often need lenders to agree to them.

The more surprising thing is I often end up explaining what a Deed of Postponement is to the lender also. Let me explain what it is. This explanation will make everything a little easier when borrowing on property.

Jumping The Queue

Imagine you are in queue at the supermarket. Someone joins the queue behind you but wants to jump to the front. You then agree, keep your place in the queue and let the person behind move in front.

When it comes to having a charge over property, the agreement to allow someone to jump in front is done via a Deed of Postponement.

Why Is It Necessary?

It enables the borrower to obtain additional financing or credit by allowing the new lender to take priority over any other lender with security over the same property. This often happens where a borrower has given the same security to multiple lenders. The lender who was first in line (has a First Legal Charge) is being replaced by a new lender.

The lender who was second (Second Charge) then goes to the front of the queue. The new lender wants to be first (have a First Legal Charge). Therefore, they ask the second placed lender to agree to a Deed of Postponement.

Given the rise in second charge lending (it grew 36% in the year to April 2024) it is likely that more borrowers will come across a request for a Deed of Postponement when they remortgage.

In the commercial mortgage space, second charges are often used for anciliary lending such as Overdrafts, Stock Loans, Mezzanine Finance etc.

How Do Lenders React?

For most secured lenders they will be pretty used to working with a Deed of Postponement. The challenge is more about getting the right person at the lender to deal with it and explaining why it is being asked for.

Most lenders will want to know why and want to ensure their position is not worsened as a result. Sometimes the lender will ask for a new valuation of the property to check this.

By Dave Farmer

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.