With changes occurring in the mortgage market regularly, it’s important for solicitors to stay on top of the latest information to ensure compliance, and to avoid unnecessary delays during a property transaction. Amid a deepening cost-of-living crisis, mortgage lending is a shaky business for all involved.
One of the most important requirements for conveyancing firms will be the requirement to have a solid understanding of UK Finance Mortgage Lenders’ Handbook (opens a new window). In short, the Handbook provides comprehensive instructions for conveyancers acting on behalf of lenders in residential conveyancing.
There is a Handbook for each legal jurisdiction in the UK. All have a Part 1, containing requirements which are uniform to all lenders, whilst there is a separate Part 2 for any lender-specific requirements. The Handbook for England & Wales also includes a Part 3, which sets out standard instructions to be used where a conveyancer is representing the lender but not the borrower (i.e. where there is separate legal representation of the borrower and the lender).
Separate representation is rare, with conveyancers in England & Wales traditionally acting for both the lender and the borrower in mortgage transactions due to benefits of both efficiency and cost. Nevertheless, separate representation may be required where there is a conflict of interest, such as in cases involving shared ownership or complex financial arrangements.
Whilst Part 3 is specific to England and Wales, it should be read in conjunction with Part 1 & 2 (opens a new window).
Specific obligations under Part 3:
Of note, the obligations placed upon the lender’s conveyancer are fairly onerous. For example, it is essential that the conveyancing firm acting for the lender make enquiries from the borrower’s conveyancer to ensure that the relevant enquiries, searches, or investigations have been undertaken and/or the relevant information and advice has been provided. The Handbook stipulates that ‘sufficient evidence’ of these enquiries should be kept which will demonstrate the requirements of the Handbook have been met.
Whilst it will be for the lender’s conveyancer to satisfy themselves that ‘sufficient evidence’ of such enquiries have been made, suggested evidence would include:
3.1.7 – a copy of any document you retain certified as a true copy of the original with the name and date of the signatory making the certification being clear on the certified copy
4.4 – either a copy of the letter which the borrower’s conveyancer has sent to the borrower covering these points, or written confirmation from the borrower’s conveyancer confirming that these points have been explained to the borrower ‘face-to-face’
6.2.1 – either a copy of a letter from the borrower confirming that the plan or the extent of the property to be mortgaged is correct, or written confirmation from the borrower’s conveyancer confirming that this has been discussed with the borrower ‘face-to-face’ and the borrower has confirmed that the description is correct.
To assist, the Handbook provides a helpful template for the lender’s conveyancer (opens a new window) in regards to the ‘standard requirements’ to certify that the title is good and marketable. However, the onus will remain on the lender’s conveyancer to evidence that they have satisfied such as requirement. Conveyancers acting for the lender should consider whether they have seen full copies of the documents they have requested, or just summaries or redacted versions. Conveyancers will need to consider exactly what they are certifying when they send off their report on title to the lender as most will only see the short form of the certificate (the full one being likely to be 7 or 8 pages).
Reporting requirements
The reporting requirements for each Lender will vary accordingly and many have updated their requirements on a frequent basis. HSBC UK Mortgage Lending Instructions for England, Wales and Northern Ireland 2022, for example, is a 17-page document with lengthy specific requirements to be complied with.
The problem here is that complacency could lead to professional negligence claims. Therefore, ongoing understanding of the requirements of both the Handbook and the specific lender requirements will be essential.
Verification requirements
Separate from being general good practice, it is also a standard requirement to verify both the borrower’s and seller’s conveyancer by checking with the Law Society, the SRA, or the Council for Licensed Conveyancers. Copies of such verification checks should be copied to the file as evidence.
Mortgage stipulations
Further obligations include the requirement to ensure that the lender’s conveyancer writes to the borrower’s conveyancer enclosing the mortgage documents, requesting that the legal implications of entering into the mortgage are explained to each borrower (there may be more than one), and to seek written confirmation that they have done so.
For example, the requirement to have building insurance is a standard requirement of most mortgages. Following on from this, there is also a requirement to obtain ‘sufficient evidence’ of how the balance of monies have been paid, for example into the borrower’s conveyancer’s client account. A paper trail of such enquiries is essential to show that the requirements of the Handbook have been met.
Consequences of non-compliance
The requirements outlined in this article are far from exhaustive and are only a short summary of the obligations placed upon conveyancing firms representing lenders in England and Wales.
In light of this, it is vital for anyone dealing with conveyancing transactions, no matter how experienced, to keep their knowledge of the Handbook and its requirements regularly refreshed along with individual lender requirements. Conveyancing firms will need to ensure that there is training for all staff conducting such transactions in relation to the Handbook, as well as sufficient supervisory oversight.
Failure to comply with the provisions of the Handbook can be a serious matter and could ultimately lead to claims for breach of contract and breach of professional duty by a firm and/or the solicitor involved. The reputation of the firm will also be called into question.
For further information, please visit our Lockton for Solicitors (opens a new window) page, or contact:
Eilish Cullen, Compliance Consultant at Teal Compliance
T: +44 794 982 6275
E: eilish@tealcompliance.com
