Changes to Part 2 of the Lenders Handbook happen on a regular basis and are not always immediately obvious. Peter Rodd outlines how to keep up to date
The Lenders Handbook (the Handbook) was introduced in July 1999 and provides comprehensive instructions for conveyancers acting on behalf of lenders in residential conveyancing. It was first amended only three months later and in total has been updated 19 times, 11 of those between 2010 and 2017. Originally the Council of Mortgage Lenders Handbook, the name was changed on 1 July 2017 when UK Finance took on activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.
Although the substantive section of the Handbook (Part 1) has not been updated for nearly five years, Part 2, which is specific to individual lenders, is frequently updated. Lenders have the ability to simply log in and change their requirements, and do so on a regular basis. The amendments made to Part 1 are scheduled so it is possible to see what changes were made and when. There is no similar provision for Part 2. As Part 2 requirements are maintained online by lenders themselves, copies of previous requirements can only be obtained from lenders directly.
The result is that the unwary conveyancer may consider that they are familiar with the Handbook requirements and not automatically check whether the lender for whom they are acting has changed their Part 2 requirements. Of the six biggest lenders, Nationwide, Barclays and HSBC have all made changes to their Part 2 requirements this year.
To assume a degree of familiarity with a lender’s requirements is to risk a potential negligence claim. Changes to Part 2 may in some cases be no more than an update as to the relevant office to contact in specific circumstances but they may also be significant. For example, recent updates include those to the following questions:
‘Question: 3.1.5. What other documents are acceptable for verifying identity?’ Some lenders now list additional options to those set out in Part 1.
Of greater significance perhaps are properties which are unusual in some way:
‘Question: 5.8.5. Does the lender accept security which comprises one of two leasehold flats in a building where the borrower also owns the freehold reversion of the other flat and the other leaseholder owns the freehold reversion in the borrower’s flat? If so, are there any specific requirements?’ Some lenders will lend, some won’t. Some require a charge over the leasehold property alone. Others require a charge over the freehold interest as well.
Leasehold property has been a fertile area for complaints and claims in recent years, especially around the term of the lease and the provisions relating to ground rent. Length of lease requirements for second-hand property vary from as little as the length of the mortgage plus 25 years, to a minimum of 85 years.
Unless you have a photographic memory, there is no realistic prospect of remembering the specific requirements of every lender for whom you act and even if you could your recollection might be out of date.
Most lenders now have detailed provisions relating to the level of ground rent. It is essential that the specific requirements are checked on every occasion (Nationwide’s requirements were updated in January of this year and HSBC’s in March).
Inevitably there will be occasions when there is a matter which needs to be reported to a lender. Many conveyancers make the mistake of simply reporting the problem and asking if the lender is happy for the mortgage to proceed. There is an assumption that the person reading the letter or email which you send will understand the significance of what you are telling them and the legal implications which flow from it. As a result, some days or even weeks later, you will likely receive a reply asking you what you recommend for dealing with the problem.
When acting for a lender you have the same obligation to give advice as you do with your buying client. Presumably in the case of the latter you would explain what the problem is, how significant it might be and how it could be ameliorated (for example, the provision of a defective title indemnity policy and the likelihood of a problem actually arising). Where appropriate (an extension built without building regulation approval) you might tell the client that the concern was about the quality of the physical construction and therefore a matter to be referred to their surveyor rather than the legal risk that might arise around the time limitations set out in sections 35 and 36 of the Building Act 1984. Similar advice should be given to the lender.
Sadly, there is a modern tendency to automatically reach for a defective title indemnity policy as an alternative to considering the relevant law. The result is disagreement between conveyancers as to whether the policy is necessary or not, estate agents become involved and after much argument a frustrated client pays a modest sum simply to resolve the impasse. Alternatively, the conveyancer acting for the buyer reports that their client’s lender requires such a policy – which of course they will if that is the advice of the conveyancer acting for them.
The other gap in the knowledge of many conveyancers is exactly what they are certifying when they send off their report on title to the lender. Most only see the short form of the certificate. The full certificate runs to some eight pages and should perhaps be required reading for every conveyancer from time to time as a reminder of what they are actually confirming.