Council of Mortgage Lenders (CML) Handbook

Before using this service please refer to the disclaimer at the foot of this page

What is the Council of Mortgage Lenders?

The council is a group of banks and building societies, which contains all but a few of the available mortgage lenders, which was set up in order to standardise lenders' instructions to solicitors.

What is the CML Handbook?

The handbook is a set of instructions which tells solicitors what is expected of them in a variety of situations. It also tells us certain things that the lenders will and will not accept (minimum terms of leases, types of property they will not lend on etc). Each lender is a separate company and inevitably has slightly different requirements in some areas, therefore the lenders' handbook has been split into two parts - part 1 is the general instructions applicable to all members of the council and part 2 contains instructions specific to individual lenders (each lender has their own part 2). At various points in part 1 it will refer the conveyancer to the part instructions.

Even if not buying with a mortgage, the handbook contains some useful advice to a would be purchaser.

The CML Handbook Explained

Part 1 of the handbook is split into 17 sections, which we will examine below. The current version was produced on 2nd July 2007 and it is updated quite regularly.

1 Instructions and Guidance

This section really just sets out certain definitions, and the scope and purpose of the handbook. It makes the point that the handbook does not obviate the need to use the due care and diligence which you normally apply to a requisition, that is to say, if you believe a particular enquiry or course of action is necessary then the fact that it is not specifically mentioned in the handbook does not mean that it need not be pursued. It also states that you may only act for a mortgagee if you are part of that firm's conveyancing panel. Finally, this section sets out certain situations where a firm cannot act.

2 Communication

Here the handbook tells us what to do if we need to report an issue to the lender and that once an issue has been reported we cannot proceed until we receive written instructions. It also makes the point that the borrower(s) authority is required before requests for title deeds are made.

3 Safeguards

Section A applies to solicitors and B applies to licensed conveyancers. The gist of both is that the conveyancer must follow their professional body's guidance on anti-money laundering procedures and mortgage fraud, as well as (unless the client is known to the firm) check the client's identity using documents from the list provided. There are additional lender specific lists in each lender's part 2 instructions. You will note also that some lenders will not proceed where the seller is not legally represented. You should consult the individual lender's part 2 instructions if acting in a purchase where the seller is undertaking his own conveyancing.

4 Valuation of the Property

The conveyancer is obliged to check the valuation report. If no copy is provided by the lender then it must be supplied by the borrower. You must check that the correct property has been valued (by checking the address on the valuation against that on the contract or title) and that any assumptions made by the valuer, such as tenure, restrictions on use, availability of parking etc are correct. Any errors or omissions should be reported to the lender so that they can ask the valuer whether the valuation needs to be revised as a result of them. It also states that where a property needs to be re-inspected prior to completion (for example a newly built property which was not constructed at the time of the original valuation) at least 10 days notice (check part 2 for lender specific requirements) needs to be given of the completion date, so that the advance can be released in time. This should be taken into consideration when exchanging contracts. If exchanging in advance of the property being ready then the seller must be obliged to give at least 10 days notice of the completion date 

5 Title 

5.1 Surrounding Circumstances

 If the seller has owned the property for less than 6 months, or the seller is not the registered proprietor, then this must be reported to the lender. The exceptions to this rule are where the sale is by personal representatives, a mortgagee under power of sale, a trustee in bankruptcy, receiver or liquidator or a builder who is selling a property acquired in part-exchange.

If circumstances arise which you believe may influence the lender's decision to lend but you are unable to disclose those circumstances due to a conflict of interest (for example you believe the borrower has given mis-leading information, or his circumstances have changed) you must return the lender's instructions stating that you cannot act any further because a conflict of interest has arisen. If the borrower gives authority to do so, then you may report the circumstances and continue to act.

5.2 Searches and Reports

This section sets out the lenders' requirements in terms of searches. It contains the catch-all phrase "all usual and necessary searches and enquiries". This simply puts the onus on the conveyancer to decide what investigations are required rather than allowing him to rely exclusively on the handbook. It specifies that searches should be no more than 6 months old at completion (except where they have an expiry date) and advises us to check the individual lender's part 2 instructions to see whether they accept personal searches and also whether an environmental search would be required. If personal searches are acceptable then the search company must have insurance which would cover the lender in the event of loss caused by the search agent's error.

5.3 Planning and Building Regulations

This states that the property must have the benefit of all necessary planning permissions and building regulations approvals for its construction and any subsequent works. Note the word necessary - many conveyancers use this section of the handbook as an argument for requesting copies of very old planning permissions or asking for unnecessary indemnity insurance policies. In terms of planning, a lack of permission for any work is not enforceable once 4 years have elapsed from the work being completed therefore unconditional planning permissions which are more than 4 years old are not necessary in terms of this section of the handbook. As to building regulations approvals and conditional planning permissions I tend to use similar arguments though technically they could be said to be always required (see the dedicated topic).

5.4 Good and Marketable Title

This section deals with the title to the property. It states that there should be no charges, restrictions or encumbrances which could adversely affect the value of the property or prevent the proprietor or charge being registered (which of course the conveyancer would want to ensure anyway) and it also goes on to set out the lender requirements in terms of good leasehold title and possessory title.

Good leasehold title occurs when the leasehold title is registered but the freehold is not. The lender will require that evidence of the freehold (and/or superior leasehold) title be obtained going back at least 15 years, or if the freehold is registered then of course Official Copies would provide suitable prop of the freehold title. In the absence of either the solicitor may certify that the lack of freehold title is commonplace and generally accepted in the particular area - this is common in some parts of Bolton and Blackburn - though obviously the solicitor is taking a risk. The final option is indemnity insurance.

Possessory title occurs when a person occupies a piece of land and claims it as his own, even though he did not purchase it. If he can demonstrate that he has occupied the land for 12 years and that occupation has not been challenged by the legal owner then the land registry may grant him possessory title. This means that, whilst he is registered as the owner, if the real owner makes a claim to reclaim possession and can prove he has a better claim (for example a deed conveying the land to him) then he will be registered as the owner and the person claiming possessory title will lose his title. A further 12 years after being registered with possessory title a person may apply to be upgraded to absolute title, and if successful his ownership cannot be challenged in future. Lenders will accept possessory title provided that the proprietor is or will be registered and that, if the land in question contains any buildings or forms part of the access to the property, indemnity insurance is in place. If it does not contain buildings or access then a plan marking the extent of the land which has only possessory title should be submitted to the lender for consideration by the valuer.

5.5 Flying Freeholds, Freehold Flats, other Freehold Arrangements and Commonhold

Not all lenders will lend on freehold flats, flying freeholds or commonholds, and the conveyancer must check the individual lender's part 2 instructions. A freehold flat is fairly self explanatory, and is a flat within a block which is not on a lease. The problem here is that a flat requires certain thing from the remainder of the block such as rights of support, a covenant by the owners of the rest of the building to insure their own parts and to contribute toward the maintenance of the common parts such as the roof, foundations and any shared landings and passageways etc. All these things would normally be contained in the lease and the covenants would be enforced by the landlord. This is important because of the fact that positive covenants (i.e. to pay a service charge, to insure or to repair and maintain etc) are only enforceable between the original covenanting parties except when contained in a lease, therefore even though the title to a freehold flat might contain all the necessary covenants, once the flats start to be sold by the original owners the covenants will become unenforceable. If there is a block of freehold flats then when they are first sold off there should be a restriction placed on each flat's title to the effect that before any transfer is registered the new owner must enter into a direct covenant with the other flat owners (which would need to be filed at land registry). In this way all the flat owners will have directly covenanted with each other. This set up would work ok for blocks of 2 or 3 flats, however much larger and it becomes a problem. Just having the new deed of covenant signed by everybody after each sale itself would be quite an undertaking, but in addition there is still noone monitoring the flat owners to check that they are complying with their covenants, such as ensuring that their flat is insured. Also in the event that a particular flat owner fails to comply with his covenants (refuses to contribute toward maintenance for example) a landlord has the option to take proceedings to determine the lease and seize possession of the flat, but in a freehold flat situation noone has that power. The other flats owners could sue but this would be a long and expensive process, and getting flat owners who are not directly affected by the breach to join in the action may prove difficult.

Ultimately, if the lender will lend on a freehold flat, it will rely on the conveyancer to certify that the title is good and marketable, so these issues should be considered very seriously before proceeding.

A flying freehold occurs when part of one property overhangs another. The most common example is where there is a covered passage between two terraced houses. If the passage owned by, say, the property on the right, but the upper floor of the property on the left extends over all or part of the passage this is a flying freehold, the problem being that part of the property on the left is supported by land which it does not own. If the extent of the property which overhangs is as small as in this example then it usually is not such an issue, but sometimes whole rooms can overhang another property. A plan showing the extent of the flying freehold should in all cases be sent to the lender for approval. In addition you must check that there are necessary rights of support from the neighbouring property as well as a right to enter the property in order to maintain and repair the part subject to the flying freehold. If there are no such rights then indemnity insurance can, and must, be obtained. The opposite of a flying freehold, where part of a property extends under another, is known as a creeping freehold, and the same rules apply. 

Commonhold is a new type of title, created by the Land Registration Act 2002, as an alternative to Leasehold. I do not intend to go into great detail here, that is for another chapter, but briefly a block of flats, instead of being leased, are split into commonhold units (each flat being 1 unit) and each unit owner must be a member of a commonhold association (effectively a management company), and the rules of the company are contained in a commonhold community statement, which basically replaces the covenants that would normally be contained in a lease. Not all lenders re prepared to lend on commonholds, and where they are the following steps must be taken:-

 

Ensure that the common parts of the building are insured in accordance with the lender's usual insurance requirements

Obtain a commonhold unit information certificate and ensure that the commonhold assessment (service charge) for the property has been paid up to completion

Ensure that the community statement does contain any material restrictions on the occupation or use of the commonhold unit (such as for example that the units cannot be occupied by persons of less than pensionable age etc.)

Under the law applying to commonhold there is a provision that allows the unit holders to wind up the commonhold association so that the commonhold units then become freehold. The community statement must therefore contain a provision that in this event the unit holders must repay any mortgage secured on their unit on termination

A company search must be carried out against the commonhold association to verify that it is in existence and that there are no registered signs that it is to be wound up

Within 14 days of completion notice of transfer and charge of the commonhold unit must be sent to the commonhold association.

5.6 Restrictions on Use and Occupation

Any restrictions on the title in respect of the occupation or use of the property as a private dwelling (such as in respect of age, income or employment) must be reported to the lender. The lender may still proceed, however further instructions must be obtained before proceeding to exchange. Restrictions that prevent the property being used for some purpose other than a private dwelling (for example as a hotel or shop) need not be reported.

5.7 Restrictive Covenants

Enquiries must be made to ascertain whether the property has been built, altered or is currently used in breach of a restrictive covenant. If there has been a breach then it is up to the conveyancer to decide whether there is a risk that the covenant will be enforced. If he cannot give an unqualified certificate of title then indemnity insurance must be obtained, unless the conveyancer is satisfied there is no risk to the lender's security, the breach has subsisted for more than 20 years and there is nothing to suggest that action in respect of the breach is being taken or threatened.

5.8 First Legal Charge

On completion the lender requires that they have the first charge on the property and that that charge is executed by all legal owners of the property. All existing charges on the property must be removed, though the lender may agree to a charge remaining (instructions should be obtained from the lender) provided that it is postponed to rank behind the lender's charge. This is done by the existing lender executing a Deed of Postponement (which must be in the new lender's standard form). Ordinarily charges gain priority on the basis of oldest first, so that if a charge were to remain and not be postponed the new lender's charge would rank behind it, meaning that if they wanted to repossess they would have to pay off the old charge before taking any money for themselves. Postponement usually only applies in remortgages, since when acting in a purchase there would obviously be no reason to require any of the seller's mortgages remained secured on the property, nor would any new lender ever agree to this.

5.9 Other Loans

The conveyancer must enquire of the borrower as to how they intend to fund the balance monies - that is to say the difference between the purchase price and the amount borrowed under the mortgage. If the conveyancer becomes aware that the balance is coming from somewhere other than the borrower's own saved or the sale of an asset (such as another property), for example a loan, or gift or second charge, then this must be reported to the lender. The borrower's consent to make the report must first be obtained however, and in the event that consent is not given the conveyancer must return the lender's instructions (the mortgage offer) and explain that he can no longer as for the lender as a conflict of interest has arisen. Although not a CML requirement, the conveyancer should also cease to act for the borrower.

5.10 Leasehold Property

When acting in respect of a leasehold property the conveyancer must the lender's part 2 instructions to see what minimum remaining term of lease is acceptable. Each lender has its own requirements but it is generally around 60 - 65 years. If the remaining term does not satisfy the lender's requirements this should be reported. 

A lease must contain a provision allowing the landlord to forfeit the lease (i.e. bring the term to an end and evict the lessee) because the lessee has become insolvent, since obviously this means the lender would not be able to repossess. This provision is rarely seen now since it effectively makes a property unmortgageable however a few still remain. In the event that the conveyancer discovers one the provision must be removed by way of a Deed of Variation, that is to say a deed varying the terms of the lease.

A lender will not accept restrictions that either absolutely prohibit assignment or mortgage of the lease, or else require consent to assignment or mortgage, unless consent cannot be unreasonably withheld. If consent is required then it must be obtained before completion.

The conveyancer must check that the lease contains adequate rights of support and shelter from the other parts of the building, rights of access, of entry to other parts of the building (including other flats) to repair and maintain the subject flat and rights to use the services (water, electricity, gas etc) which cross other parts of the building. There must also be adequate covenants and arrangements in place in respect of insurance and maintenance of the structure and the common parts, that is to say the roof, foundations, load bearing walls, gardens, landings, stairways etc. Buildings insurance must be the responsibility of either the landlord, one or more of the tenants, or the management company. If responsibility falls on the tenants then the lease must contain a covenant by the landlord or management company to enforce the covenant to insure against the other tenants and the request of the tenant requiring enforcement. Such a covenant by the landlord will usually be subject to the tenant agreeing to be responsible for any cost incurred by the landlord or management company in taking enforcement action. Although not mentioned in the handbook, the conveyancer should also insist on seeing a copy of each flat owner's insurance to ensure that it both exists and is sufficient. If copies cannot be supplied then the conveyancer should insist on contingent buildings indemnity insurance.

The lease should contain a covenant by the landlord confirming that all other leases in the block will be in substantially the same form, and in particular will contain the same covenants. In the absence of this provision each lease should be inspected to ensure that it contains the necessary covenants, or else indemnity insurance should be obtained. This is not essential where the responsibility of insurance and maintenance of the structure and common parts falls on the landlord.

Leases which contain provisions allowing for periodic increases in the level of ground rent are acceptable provided that the increases are fixed or can be readily established and are reasonable. If the conveyancer suspects that the provision for ground rent increases is such that the level of rent may in future materially affect the value of the property, this should be reported. Many leases contain a provision whereby the rent is increased in line with the Retail Price Index (basically the cost of living). This is generally acceptable. The mortgage offer will often state how much the lender believes the annual ground to be currently. If the figure in the offer is not accurate this should be reported.

Enquiries should be raised of the landlord or management company to establish whether there is likely to be any significant increase in the level of service charge in the foreseeable future (for example if any major works are planned, or if it has been decided that the current level of charge is sufficient to meet expenditure) and if there is this must be reported. If any term of the lease is not satisfactory then it must be varied by way of a Deed of Variation. As an alternative the lender may accept indemnity insurance . The lender's part 2 instructions to be checked and if the lender's instructions are still not clear the conveyancer should write to the lender to ask for further instructions.

A clear ground rent receipt and service charge receipt, or other written confirmation that the same has been paid, must be obtained from the landlord/management company on or prior to completion. In the event that the landlord is absent and a receipt cannot be obtained then the conveyancer may proceed if he is satisfied that this is common practice in the area and that the seller has confirmed that no breaches of the lease (other than the covenant to pay rent) have been committed and that the conveyancer is prepared to give a clear, unqualified certificate of title. If an unqualified certificate of title cannot be obtained then indemnity insurance will be necessary. Some lenders require that the receipt for rent and service charge be sent to them following completion, check the individual lender's part 2 instructions.

Whether or not required by the lease, the conveyancer must serve notice on the landlord (or management company) of the assignment of the lease and of the new mortgage, including the name and address of the lender and the mortgage account number, and a receipt for the notice (usually in the form of a copy signed by the landlord) must be obtained. In the event that a receipt cannot be obtained then as a last resort evidence of service of the notice will be acceptable. Note that landlords will generally charge a fee for receipting notices and this should be ascertained and collected from the purchaser prior to completion. A letter from the landlord acknowledging the notice but asking for a fee before providing the receipt is usually sufficient evidence of service.

If the landlord is either absent or insolvent then this must be reported to the lender. If they are to lend then they may require indemnity insurance.

If the leasehold title to the property is registered but the lease has been lost the lender will proceed provided that a copy of the lease produced by the land registry is obtained and inspected and that it appears to be a complete copy.

5.11 Management Company

If there is a management company which is required to insure the building and maintain the common parts then it must be granted a legal right to enter the property to do so. Unless that right is granted by way of a lease of the common parts, the company must be made up of the tenants of the building. If it is not then the lease should contain a covenant by the landlord to take over the management company's responsibilities in the event that it fails. If the lease was granted before 1st September 2000 and does not meet these requirements but the conveyancer is nonetheless satisfied that the arrangements which are in place are sufficient then the lender will be happy to proceed provided that the conveyancer is prepared to give a clear certificate of title.

A company search should be carried out to verify that the management company is registered and is still in existence. The past 3 years' service charge accounts be inspected and any apparent problems should be reported to the lender. If the company is limited by shares and the tenant is required to become a member of the company then the conveyancer should obtain confirmation that the seller's share certificate will be handed over on completion together with a stock transfer form signed by the seller. He must also ascertain the procedure and fee for the issue of a new certificate in the purchaser's name and ensure that the new certificate is issued after completion. Some lenders will require that the new share certificate is given to them after completion together with a blank stock transfer form signed by the purchaser and a copy of the company's memorandum and articles of association (check part 2). If the company is limited by guarantee then the purchaser must become a member of the management company. If there is more then only one need become a member.

5.12 Insolvency Considerations

The conveyancer must carry out a bankruptcy search (K16) against all borrowers and any guarantors. The search is against the person's name and if an entry is revealed it must be investigated to establish that it does not relate to the borrower or guarantor. If the relate does relate then this must be reported to the lender, who as a consequence may withdraw the offer. Once carried out (if clear) the search will protect the lender for 15 days, and the conveyancer must ensure that the search is still valid at completion.

If the conveyancer is aware that the property has been transferred by way of a gift or at an apparent undervalue within the last 5 years then he must be satisfied that the lender's interest is acquired in good faith. This is because under bankruptcy law, if a person against whom bankruptcy proceedings have commenced disposes of a property in order to prevent it from being sold to pay creditors the trustee in bankruptcy or the official receiver may set aside the transaction and take possession of the property. This can only be done within 5 years of the transaction and cannot be done if the transaction is "at arm's length and for value" i.e. the full market value was paid and the buyer is not a relative or business partner of the seller. When acting in the purchase of a property at undervalue, or the transfer of a property by way of gift, the conveyancer should obtain a clear bankruptcy search against the seller and also should obtain indemnity insurance.

5.13 Powers of Attorney

Where a document is executed under a power of attorney, the conveyancer must check that it is properly drawn up and executed and that the attorney knows of no reason why the power will not be subsisting at completion. If there are joint borrowers, one may not appoint the other to act as his attorney. A power of attorney cannot be used in connection with a regulated loan under the Consumer Credit Act 1974, such as an unsecured personal loan attached to a mortgage. If the power of attorney is a general power and was completed more than 12 months ago a statutory declaration confirming that the power has not been revoked must be sent to the lender on completion. Check the lender's part 2 to see if they require the original, or a certified copy of, the power.

5.14 The Guarantee

Whether or not the borrower takes the property with full title guarantee, he must give the lender full title guarantee in the Mortgage Deed.

5.15 Affordable Housing : Shared Ownership and Shared Equity

If the property is subject to a shared equity or shared ownership scheme the conveyancer should check whether the lender is prepared to lend. This will be stated in the lender's part 2, which will also set out their requirements.

6 The Property

6.1 Mortgage Offer and Title Documents

The mortgage advance will not be released until all offer conditions have been satisfied and the certificate of title has been received by the lender. The conveyancer should ensure that there are no discrepancies between the lender's instructions and the title documents and other investigations. If the conveyancer becomes aware that the borrower does not intend to take up the offer he should inform the lender immediately.

6.2 Boundaries

The boundaries of the property must be clearly defined by reference to a plan or description. If the valuation report contains details as to the extent of the boundaries then the conveyancer should ensure that these accord with the plan. The conveyancer should also check with the borrower that the plan or description accords with his understanding of the extent of the property. Any discrepancies should be reported to the lender.

6.3 Purchase Price

The purchase price must be the same as that stated in the mortgage offer. If it is not then this should be reported. Unless otherwise stated in the mortgage offer or the lender's part 2 instructions the conveyancer should also report any cashback arrangement (such as an allowance)and any other cash or non-cash incentive (such as a vendor-paid-deposit or new carpets). Ordinary items listed as included in the sale on the fixtures and fittings list need not be reported though beware unusual items such as brand new items which have never been opened, cars etc.

If the conveyancer will not have control over the payment of all of the purchase price (for example if the buyer is paying the seller part of it direct) this must be reported, though this does not apply to reservation fees paid to a builder of £1,000 or less, or a holding deposit held by an estate agent.

6.4 Vacant Possession

Unless the offer states that it is a buy to let offer then vacant possession must be obtained at completion and this must be a condition of the contract. If the conveyancer believes that the property will not be vacant (which includes situations whereby the purchaser agrees to let the seller stay on, even if only for one night) then the mortgage advance must not be used and the situation must be reported to the lender.

6.5 Properties Let at Completion

If the purchaser is buying the property with the intention of letting it then you must first check that the mortgage offer is a buy to let offer. If this is not obvious from the offer then the fact that the property will be let should be reported to the lender and the lender's further instructions awaited. The mortgage offer will usually set out the lender's requirements in terms of a tenancy agreement. Each lender is different, but most will require as a minimum that any tenancy is an Assured Shorthold Tenancy for a term of no more than 6/12 months, that there is no provision allowing the tenant to stay on beyond the expiry of the term or to perpetually renew it and that the tenant is not a relative of the borrower. Some lenders will require a counterpart or certified copy tenancy agreement to be sent to them on completion - check part 2.

6.6 New Properties - Building Standards Indemnity Schemes

Where a property has been built or converted within the last 10 years it must have the benefit of a building standards indemnity scheme. The lender's part 2 will list all the schemes which are acceptable to them. The two main schemes are NHBC and Zurich. If the insurance certificate is not available on completion (as will be the case for brand new properties) a cover note which confirms that the property has been subject to a satisfactory final inspection must be supplied prior to release of the advance. For new build properties it should be a condition of the contract that a cover note will be supplied via the seller's solicitor at least 10 working days prior to completion.

If no such scheme is in place, and the property has been built or converted within the last 6 years, then check the lender's part 2 to see if they will lend. If so it will be on terms that the conveyancer is satisfied that the work was/will be monitored by a professional consultant, who has supplied/will supply a professional consultants certificate in the form appearing at the end of part 1 of the lenders' handbook. The professional consultant must have one or more of the following qualifications :- FRICS or MRICS, F.I Struct E or M I Struct E, FCIOB or MCIOB, FASI or MASI, FB Eng or MB Eng, MCIAT, RIBA, FICE or MICE. At the time that the certificate is issued he must have professional indemnity insurance for the greater of either the value of the property or £250,000 if employed directly by the borrower or £500,000 in all other cases.

6.7 Roads and Sewers

If the roads and sewers immediately serving the property are not adopted, that is to say maintained by the highways/water authority at the public expense (as will usually be the case with newly built properties), then the conveyancer must check that there is an agreement for adoption in place and that the agreement is supported by a bond paid by the developer to the authority. In the case of roads this will usually be a section 38 agreement and for sewers a section 104.

 

If it is intended that the roads will remain private and be maintained by the frontagers or by a management company then this is acceptable provided that in the opinion of the conveyancer there are satisfactory arrangements in place with respect to maintenance and repair costs.

6.8 Easements

The conveyancer must check that the property has the benefit of all necessary rights and that those rights are enforceable by both the borrower and the borrower's successors in title. If the borrower owns land adjoining the property, over which access to the property is gained or services (drains, cables etc) cross, then this land must also be mortgaged to the lender.

6.9 Release of Retentions

If the lender makes a retention, that is to say holds some money back from the mortgage advance pending some action being performed (for example some repair or improvement works) then the lender is not obliged to release it if the condition is not fully satisfied, the borrower is in breach of some other mortgage condition or if the loan has been repaid in full. A conveyancer should not therefore give an unqualified undertaking to pay the retention to a third party and should not rely on it for fees etc. When the lender does release the retention it may either be sent via the conveyancer or direct to the borrower - this will be stated in the lender's part 2.

6.10 - Neighbourhood Changes

If the searches or enquiries reveal that the property is in an area scheduled for redevelopment or is in any way affected by road proposals this must be reported to the lender.

6.11 Rights of pre-emption and restrictions on re-sale

The conveyancer must ensure that none of the above exist which will affect the lender's security. If there are these must be reported. Such things as a right of first refusal for the local authority in respect of the sale of a right to buy property or for a housing association in respect of a shared ownership property are acceptable since they require that the purchaser pays the full market value for the property and there are usually reasonable time limits for exercising the rights.

6.12 Improvements and Repair Grants

If the property is subject to the above which will still apply following completion check the lender's part 2 to see if it need be reported.

6.13 Insurance

Lenders require that either the buildings insurance policy for the property be taken through themselves or else that it meets certain criteria. Each lender's criteria are slightly different and the part 2 instructions should be consulted along with clause 6.13 of part one, but basically you must ensure the following:-

• That insurance is on risk from no later than completion (it is a good idea actually to insure from exchange)

• That the policy will be in the joint names of both the borrower and the lender. If it is not then it may be acceptable simply for the lender's interest to be noted - check part 2.

• The cover must be index linked

• The sum insured must not be less that the amount stated in the lender's instructions, or if no figure is given then not less than the reinstatement value stated in the valuation/survey report. If the property is a flat and is insured on a block policy then the sum insured should be at least the reinstatement value x the number of flats covered by the policy.That the maximum excess does not exceed the limits set out in the lender's part 2 instructions

• That the following risks are covered :- fire, lightning, aircraft, explosion, earthquake, storm, flood, escape of water or oil, riot, malicious damage, theft or attempted theft, falling trees and branches and aerials, subsidence, heave, landslip, collision, accidental damage to underground services, professional fees and site clearance and public liability to anyone else.

Some lenders will also require confirmation that the insurer will inform them should the policy be cancelled or not renewed, and some will require a copy of the policy to be sent to them on completion.

7 Other Occupiers

If there will be anyone in occupation of the property on completion other than the borrower(s) (or tenants if the mortgage is buy to let) then each of these people need to sign a consent and waiver in the lender's standard form, in which they consent to mortgage and waive any rights of occupation they may acquire in favour of the lender. This is so they cannot claim any right to remain or financial interest ranking ahead of the lender's charge should the lender repossess. Even you are told that the occupier will only be staying for the short term, a consent and waiver is still required.

If you have any reason to believe that the information given by the borrower as regards occupiers is incorrect or mis-leading you should, with the borrower's consent, report this to the lender. If the borrower does not consent you must cease to act in the transaction, citing a conflict of interest.

8 Separate Representation

The conveyancer must not give advice to either a guarantor, an occupier who will be signing a consent and waiver or any borrower who will not personally benefit from the loan. Some lenders will allow advice to be given to such people, on the condition that they have first been advised, in the absence of anyone else interested in the property, that they should seek independent legal advice. Any advice then given should be in the absence of anyone else interested in the transaction.

Even though some lenders allow advice to be given to guarantors and occupiers etc. there is it seems a great potential for a conflict to arise in these situations and in my view at least, the conveyancer should not agree to give advice, beyond advising that the person in question should seek independent advice but that they are not obliged to do so (unless the lender specifically requests that any documents they need to sign are witnessed by a solicitor, in which the solicitor must be independent).

9 Indemnity Insurance

Please see the separate chapter on Legal Indemnity Insurance for a fuller discussion on the subject. When obtaining insurance where there is a mortgagee you must approve the terms of the policy on the lender's behalf - only send a draft policy for approval is specifically requested by the lender. You must ensure that the policy is obtained without cost to the lender and that the limit of cover meets its requirements. Cover should be for at least the full purchase price but some lenders will require it to be 110% or 115%. A full disclosure of the facts surrounding the defect which is being insured should be made to insurer and the policy should not contain any conditions which would make it void or would prejudice the lender's interests.

You must explain to the borrower that he take any further lending against the property an additional policy may be required and you must explain the conditions and that he must comply with them. The policy should always cover the lender. It may not cover the borrower in some cases and if it does not then the borrower must be informed of this.

10 The Loan and Certificate of Title

The certificate of title is a certificate confirming to the lender that, in the conveyancer's opinion, the title to the property is good and marketable (see the section Mortgage Offers for more information). It should not be submitted unless either it is unqualified or else you have authorised to proceed in writing by the lender notwithstanding any issues you have raised with them.

The certificate will be treated as a request for the advance to be released and you must check the lender's part 2 to see whether the funds will be released electronically or by cheque, what standard deductions the lender will make and crucially, how much notice the lender requires from receipt of the certificate to release of funds. If a proposed completion date is too soon to allow time for the lender to be given the required notice then contracts should not be exchanged until the funds are received. It is sensible to request funds for the working day before completion so that any delay in receiving the money on the day (it will usually be sent by CHAPS and so could arrive any time before close of business) will not delay completion. It should be noted that some lenders automatically send funds one day early and the conveyancer should check this.

The mortgage advance should not be used unless the conveyancer has all that is necessary in order to register the transaction and the lender's charge - that is to say funds to pay the stamp duty and registration fees, either a correctly completed and executed Stamp Duty Land Tax return or a power of attorney from the borrower so that the conveyancer may complete the form on his behalf, undertakings (given in replies to requisitions) by the seller's conveyancer to forward a signed transfer deed and to redeem any existing charges and a mortgage deed correctly executed by all borrowers.

If, after requesting the advance, you learn that completion will be delayed, you must inform the lender immediately and advise them of the new completion date if known. If the advance has already been released check the lender's part 2 to see how long it can be held before it must be returned. If it needs to be returned the conveyancer should check with the lender how this must be done. Some lenders will have a specific account for funds returned, others (such as Halifax) will only accept a cheque. You should also ask the lender how long it will be before the funds can be re-released. If completion is delayed but the lender is not informed they will assume that completion has taken place and will begin charging interest to the borrower and debiting payments.

11 The Documentation

The mortgage deed which the borrower must sign will incorporate the lender's standard mortgage (and if applicable loan) conditions, and this should be explained to the borrower as should the implications of taking a charge against property. If a conditions booklet is supplied by the lender this should be given to the borrower.

The handbook states that it is good practice that the borrower's signature to any document associated with the mortgage is witnessed by a solicitor, legal executive or licensed conveyancer, however this is rarely done unless the lender specifically requests it (in which case it will be clear from the document). Generally any adult, who is neither related to the borrower nor an interested party in the transaction, will be sufficient as a witness.

12 Installment Mortgages and Mortgage Advances Released in Installments

Instalment mortgages are something I do not have any experience of, therefore I have nothing of value to add to the advice given in the handbook.

13 Mortgage Indemnity Insurance or Higher Lending Charge

Mortgage indemnity insurance is usually obtained by a lender when they are lender more than a given percentage of the purchase price, so that there is a risk that on repossession they will not recoup all their lending and costs. The policy is paid for by the borrower, usually added to the total loan. It should be explained to the borrower that the policy covers the lender only and that if the lender makes a claim the insurer has a right to pursue the borrower to recover the amount paid, so that as far as the borrower is concerned the debt is not written off.

14 After Completion

14.1 Registration

The lender's charge must be registered as a first legal charge and prior to submitting the application for registration the conveyancer must take copies of the transfer deed, mortgage deed, discharge documents (such as a DS1 or DS3) and must certify those copies as being true copies of the originals. If the purchaser is a company then the charge must be registered at companies house within 21 days of completion using form 395. It is absolutely vital that the charge is properly registered in time - if the deadline is missed then companies house will only register the charge if the court orders them to do so. This would obviously be extremely costly and time consuming for the conveyancer. See the chapter on Company Mortgages for more information.

The application for registration must be submitted to the land registry prior to expiry of the protection afforded by the original Official Search in the case of registered title, or within 2 months of completion in the case of unregistered title. The lender may require the original mortgage deed to be sent to them after registration (check their part 2). If so, a certified copy must be sent to the land registry along with the original - if it is not then the original will be destroyed.

14.2 Title Deeds

Following completion any title deeds, search results, enquiries etc should be held to the lender's order. The conveyancer should write to the lender if the registration is not complete 3 months following completion with an explanation of the delay together with copies of any relevant correspondence. When registration is complete check the lender's part 2 to see what documents they wish to receive, and send only those documents. The remainder should be sent to the purchaser.

14.3 Your Mortgage File

The file in respect of the transaction must be retained by the conveyancer for at least 6 years before being destroyed. This can be done by taking an electronic copy of the file. If the borrower demands the file following completion (as is his right under the Data Protection Act) then full copies, certified where appropriate, must first be made. It is common practice for a fraudster to demand the file in this way in an attempt to destroy evidence.

15 Legal Costs

The conveyancer's costs are the responsibility of the borrower and should be collected by the conveyancer prior to completion. The conveyancer may not allow non-payment of fees to hold up the submission of the stamp duty land tax return or application for registration.

16 Transactions During the Life of the Mortgage

16.1 Request for Title Documents

Any requests for the title documents must be made in writing to the lender and the conveyancer must state that he has the authority of the borrower to obtain them.

16.2 Further Advances

The lender's charge also secures further advances made to the borrower therefore it is not normally necessary to instruct a conveyancer to deal with this.

16.3 Transfers of Equity

A fuller discussion on transfers of equity can be found in the separate chapter Transfers of Equity, here we will simply discuss the lender's requirements.

Firstly, the lender's consent will need to be obtained by the borrower. The lender may have its own preferred form of transfer and if so this must be used. If not then when drafting the transfer the conveyancer must include the following:-

• The transfer must state that it is subject to the mortgage, which must be defined by including the date and parties. Words to the effect of "This Transfer is Made subject to a charge dated 01/01/2001 given by John Doe ("the Borrower") in favour of The High Street Bank plc ("the Lender") ("the Mortgage")" would be acceptable.

• The handbook says that the transfer need not state the amount of outstanding debt, but in fact for stamp duty purposes it must. In box 9 (consideration) it should state the total outstanding debt (including the principal sum and interest) as at the date of completion. This figure should be ascertained by obtaining a redemption statement. Note that any sum paid to an outgoing owner for his share in the property will also form part of the consideration. The handbook states that there should be no statement that all interest has been paid to date

• In the transfer every incoming owner must covenant with the lender to repay the mortgage. The lender's preferred form of covenant is "The new borrower agrees to pay the lender all the money due under the Mortgage and will keep to all the terms of the Mortgage"

• If a borrower is being released from the mortgage (because they are parting with their share of the property) the lender's preferred form of words is "The lender releases ... from [his/her/their] obligations under the Mortgage".

• The consent of any guarantors of which the conveyancer is aware must be obtained before the transfer of equity is completed The lender's part 2 instructions gives the lender's preferred form of attestation clause

16.4 Properties to be Let after Completion (other than Buy to Let)

If a borrower decides that he wishes to let a property after completion and the mortgage is not a But to Let mortgage then you should advise the borrower that it is a breach of his mortgage conditions to do so without the lender's consent, and that if consent is granted the lender reserves the right to vary the terms of the mortgage including charging a higher rate of interest. In all cases the proposed rent must be sufficient to cover the gross mortgage payments at the time. If as a conveyancer you are instructed by the lender then you must check the tenancy agreement in accordance with the handbook.

16.5 Deeds of Variation etc

If at any time during the life of the mortgage a deed of variation or rectification etc is required (for example to correct a defect in a lease, grant or reserve a right of way or amend a boundary plan) then provided that the conveyancer can confirm that the lender's security would not be adversely affected the lender will usually consent. It is at the conveyancer's discretion as to whether the lender should sign the deed or give a separate letter of consent. If the conveyancer cannot confirm that the security will not be affected then the lender will need to consider the matter further, for which a fee will be charged.

16.6 Deeds of Postponement or Substitution

The position in the register, and therefore the priority, of a charge is determined by its age (oldest first). The priority order can be changed however with a deed of postponement, in which one chargee agrees that their charge can rank behind another even though it is older. When entering into any deed which alters the priority order of charges the lender's standard form of deed must be used, however if a lender originally held the first charge they will in no circumstances agree to postpone it.

17 Redemption

17.1 Redemption Statement

A redemption statement is a statement showing how much is left to pay on a mortgage or loan. When requesting a statement the initial request should be in writing, quoting the date it is intended to redeem, the main mortgage account number and other account numbers of which you are aware and stating that you act on behalf of the borrower with the borrower's written authority.

17.2 Discharge

When repaying the mortgage the conveyancer should also send to the lender the discharge document for sealing. This will either be in form DS1 or END1 (check part 2).

Regards

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