Council of mortgage lenders handbook

A solicitor is also required to be satisfied that any obligations under a planning agreement, such as a section agreement, have been complied with or do not bind the individual property. This section deals with the title to the property. The CML handbook 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 solicitor 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. In the absence of either a 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 a solicitor is taking a risk.

The final option is indemnity insurance. Possessory title is a topic all of its own and if encountered should be studied separately, but briefly it 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 or 10 for land that is registered 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. According to the CML handbook 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. Not all lenders will lend on freehold flats or on flying freeholds and the solicitor must check the individual lender's CML handbook 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 things 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. 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 solicitor to certify that the title is good and marketable that old CML handbook get out of jail free card for the lender , 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 though you will need to check the lender's CML handbook part 2 , 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. This section of the CML handbook covers a few situations which arise when dealing with flats.

First, where the flat is freehold but the borrower does or will own the freehold of the whole building, there are no more than four flats in the block and all of the other flats are subject to long leases this will usually be acceptable. Where the subject flat is on a lease and the owner of one of the other flats also owns the freehold of the building and again, there are no more than 4 flats in the block, this will also be acceptable.

Commonhold is a new type of title, created by the Land Registration Act , 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 are prepared to lend on commonholds and their CML handbook part 2 must be consulted. Where they are the following steps must be taken According to the CML handbook 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.

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 solicitor 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 solicitor 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.

This provisions is a good example of the CML handbook being useful as a general conveyancing guide. On completion the CML handbook states that 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.

The solicitor 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 a solicitor becomes aware that the balance is coming from somewhere other than the borrower's own savings 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 solicitor 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 handbook requirement, the solicitor should also cease to act for the borrower. When acting in respect of a leasehold property a solicitor must check the lender's CML handbook 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 and the term may need to be extended.

A lease must not contain a provision allowing the landlord to forfeit the lease i. This provision is rarely seen now since it effectively makes a property unmortgageable however a few still remain. In the event that a solicitor 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. A solicitor 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 CML handbook requires that 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 CML handbook, a solicitor 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 a solicitor 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 solicitor 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 CML handbook part 2 instructions to be checked and if the lender's instructions are still not clear a solicitor should write to the lender to ask for further instructions.

In the event that the landlord is absent and a receipt cannot be obtained then the solicitor 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 solicitor 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 CML handbook part 2 instructions.

Whether or not required by the lease, the a solicitor must in accordance with the CML handbook 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.

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 or by being a party to a leases of the flats, the company must be made up of the tenants of the building. If it is not then the CML handbook states that 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 and does not meet these requirements but the a solicitor is nonetheless satisfied that the arrangements which are in place are sufficient then the lender will be happy to proceed provided that a solicitor 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 shareholder of the company then a solicitor 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 CML handbook 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. A solicitor 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.

One method of doing this is to telephone the Official Receiver which dealt with the bankruptcy which is the subject of the entry you can get their details from telephoning the Insolvency Service and check your client's date of birth against the bankrupt's. If the entry does relate then in accordance with the CML handbook 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 solicitor must ensure that the search is still valid at completion.

If a solicitor 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. When acting in the purchase of a property at undervalue, or the transfer of a property by way of gift, a solicitor should obtain a clear bankruptcy search against the seller and also should obtain indemnity insurance.

Where a document is executed under a power of attorne y, the solicitor 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 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 CML handbook part 2 to see if they require the original, or a certified copy of, the power. Whether or not the borrower takes the property with full title guarantee, he must give the lender full title guarantee in the Mortgage Deed. If the property is subject to a shared equity or shared ownership scheme a solicitor should check whether the lender is prepared to lend. This will be stated in the lender's CML handbook part 2, which will also set out their requirements.

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 solicitor should ensure that there are no discrepancies between the lender's instructions and the title documents and other investigations. If the solicitor becomes aware that the borrower does not intend to take up the offer he should inform the lender immediately.

If you have any queries about the Handbook please view the FAQs section. See our Summary of amendments for previous versions of the part 1. Privacy notice This site makes use of cookies.

Continue Read our cookie policy. Search UK Finance You can use the search function to find a range of UK Finance material, from consultation responses to thought leadership to blogs, or to find content on a range of topics from Brexit to commercial finance. UK Finance mortgage lenders' handbook for conveyancers. Login to Lenders' Handbook The UK Finance lenders' handbook provides comprehensive instructions for conveyancers acting on behalf of lenders in residential conveyancing transactions.

You should remind the Borrower that they must maintain such buildings insurance throughout the term of the Equity Mortgage and that our interest is always noted on this. If the Property Information Form states the name of a person who is to live at the Property, you should ask the Borrower before completing the Equity Mortgage that the information given to us in the Property Information Form about any occupants aged 17 or over is correct and no other persons aged 17 or over will live at the Property.

Before completion of the Equity Mortgage you must obtain an executed Occupiers Deed of Consent Form from all occupants aged 17 or over of whom you are aware will not be a party to the Equity Mortgage. You are however required to retain a copy on file. You must satisfy yourself before arranging insurance that the conditions of the policy have been complied with.

Where the insurance policy is already in place you must satisfy yourself that such policy is valid and complies with our requirements.

You are required to submit the Certificate of Title prior to the completion of the Property. We shall treat the submission by you of the Certificate of Title as confirmation that the Borrower has chosen to proceed with the Equity Mortgage and as a request for us to release the Equity Mortgage advance to the Seller.

The Equity Mortgage advance is released directly to the Seller. You are only authorised to complete the Equity Mortgage:. If completion does not take place on the date set for completion, you must inform us via the Help to Buy Agent immediately. You must comply with our instructions set out within Paragraph 2. This is not applicable to our instructions to you. We will not lend on building contracts under any circumstances. You must register our Equity Mortgage as a second legal charge at HM Land Registry, on every title and associated title to the Property which must rank immediately after the First Charge Mortgage.

You must therefore also register our second legal charge against the titles of any separate parcels of land associated to the Property such as garages or parking spaces , and ensure that the lease or transfer documents relating to these parcels contain a provision preventing their sale without the sale of the remainder Property. You must ensure that our standard form of Equity Mortgage is correctly completed and executed by the Borrower and is submitted to HM Land Registry for registration within the priority period of the whole Property.

For our requirements relating to the HM Land Registry priority search in our favour please refer to Section 5. You are required to provide the Help to Buy Agent with all Official Copy Entries of the Registers relating to the Property evidencing that our second charge has been registered by no later than 10 working days following registration.

You are required to send to the Help to Buy Agent the following a certified copy of:. Where you are processing personal data as defined by Data Protection Legislation on our behalf, you must:. Subject to any right of lien or any overriding duty of confidentiality, you should treat documents comprising your file as if they are jointly owned by the Borrower and us and you should not part with them without the consent of both, to any third parties.

You should on request supply certified copies of documents on the file or a certified copy of the microfiche to either the Borrower or us, without any charge.

For the avoidance of doubt, this would not include a document fee. All title documents that you require should be available for download from the HM Land Registry portal and you should contact them in the first instance. If you have been unable to obtain direct confirmation from the First Charge Mortgage Lender that they will not make further advances or permit tacking without the consent of Homes England, you are required to request further instructions from the Help to Buy Agent.

Any party being removed from the title of the Property must enter into our standard form deed of release to be released from the Equity Mortgage. Our standard forms deed of release can be requested from the Mortgage Administrator and no amendments will be agreed. If any proposed transferee fails our eligibility criteria and checks then we will not consent to the Transfer of Equity.

If the Borrower wishes to proceed with the Transfer of Equity, then they must first redeem the Equity Mortgage. However, if one party is being released from the Equity Mortgage, this must not be incorporated within the transfer.

You are required to use our standard deed of release in this instance. You should contact the Mortgage Administrator. You must notify us via the Mortgage Administrator if any new party is being added to the title to the Property.

The new party will need to also be added to the Equity Mortgage and will need to satisfy the Scheme eligibility criteria and our checks. If they do then they will be required to enter into our standard form of deed of accession. If they do not and the Borrower wants to proceed with the Transfer of Equity the Borrower must redeem the Equity Mortgage.

The transferee of the Property is required to enter into a deed of accession as outlined in Section If we have agreed to release a Borrower you are required to use our standard form deed of release, which may be requested from the Mortgage Administrator.

All parties must execute the deed of release or deed of accession as applicable before it is sent to the Mortgage Administrator for execution together with the draft form of transfer and covering letter explaining the consequences of the transfer.

If prior to completion you become aware that the Borrower intends to let the Property you must immediately notify the Borrower that they will not be eligible for the Scheme and comply with Section 5. Any application to us for subletting should be sent to the Mortgage Administrator. You are reminded that we will only permit subletting in exceptional circumstances. If the Borrower is re-mortgaging or obtaining a further advance, they are required to immediately contact the Mortgage Administrator for our detailed instructions, forms and guidance which you are required to use and follow at all times.

If we agree to enter into an arrangement with other lenders concerning the order of priority of their mortgages, you are required to use our standard deed of postponement, which can be obtained from the Mortgage Administrator. No amendments to our standard form of deed of postponement will be agreed. Deeds of postponement supplied in any other form to our standard form will be rejected and returned to you unexecuted and result in the transaction being delayed.

The Equity Mortgage is not portable, however if the Borrower has enfranchised and acquired the entirety of the freehold title of the Property, we will require you to follow our deed of substituted security procedure.

Further details can be obtained from the Mortgage Administrator. A redemption statement will only be provided once the Borrower has complied with the redemption process set out within the Equity Mortgage and the procedure set out within our customer information pack.

As part of this process you will also be required to provide an undertaking. In order to obtain a copy of the customer information pack the Borrower will need to contact the Mortgage Administrator. Any remittance received which does not comply with the above will be returned to you and we will not provide an eDS1.

To help us improve GOV. It will take only 2 minutes to fill in. Cookies on GOV. UK We use some essential cookies to make this website work. Accept additional cookies Reject additional cookies View cookies. Hide this message. Homes England. Contents Overview 1. General 2. Communicating with the Lender 3. Safeguards 4. Valuation of the Property 5. Title 6. The Property 7. Other Occupiers 8. Circumstances Requiring Independent Legal Advice 9.

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