COT Assurances to Lenders to be Extended

An important amendment is be made to to clause 10 of the CML Lenders’ Handbook on 1 February 2016.

The amendment will insert an additional sentence into clause 10.2 as follows: (additional wording in bold)

10.2 We shall treat the submission by you of the certificate of title as confirmation that the borrower has chosen to proceed with our mortgage offer and as a request for us to release the mortgage advance to you. Check part 2 to see if the mortgage advance will be paid electronically or by cheque and the minimum number of days notice we require. 

The amendment is designed to reflect the introduction of a requirement, as the result of the Mortgage Credit Directive, for mortgage customers to have a ‘reflection period’, of at least seven days before accepting a mortgage offer. Recital 23 and Article 14(6) of the Directive set this out. The customer can bring that reflection period to an end earlier, by accepting the mortgage offer.

The wording intends to clarify that, in cases where the mortgage lender does not already require a formal acceptance from the borrower, that the current practice of the conduct of borrower in drawing down the loan, acts as acceptance of the mortgage offer, and creates the contract; this in turn, in cases where the draw-down happens before the end of the reflection period, confirms that the customer has brought the reflection period to an end by their conduct, which Recital 23 expressly allows for.

Lenders will explain the concept of the reflection period in information provided to prospective borrowers, for example, in the mortgage illustration, mortgage offer and mortgage terms and conditions. Many lenders are either allowing a 10 day reflection period (to account for postage time) or aligning the reflection period with the existing offer expiry date (which can be up to 6 months). The CML consulted with the legal sector and the financial services regulator (FCA) on this amendment. 

I wonder how many firms have adjusted their Terms and Conditions to cater for this? 

Skipton make Subtle but Important Change to CML Handbook Requirements

Skipton Building Society have made a recent change to P2 of their CML Handbook. The change was to Section 4.1

The old wording was :

The Borrower should provide you with a copy of the valuation. If not, you can obtain a copy from the Completions Team

The new wording is:

We provide a copy of the valuation to you in most cases. If not attached to your instructions, please obtain a copy from the Completions Team

This change seems to reaffirm the P1 obligation to have sight of and check the valuation report. It’s very easy to assume that if the lender does not send a copy of the valuation that you are not obliged to check it. It’s nevertheless very important to remember that  regardless of where the report is obtained from, you must carry out the checks detailed in sections 4.2 and 4.3 of the Handbook which read as follows:

4.2 You must take reasonable steps to verify that there are no discrepancies between the description of the property as valued and the title and other documents which a reasonably competent conveyancer should obtain, and, if there are, you must tell us immediately.

4.3 You should take reasonable steps to verify that the assumptions stated by the valuer about the title (for example, its tenure, easements, boundaries and restrictions on its use) in the valuation and as stated in the mortgage offer are correct. If they are not, please let us know as soon as possible (see part 2) as it will be necessary for us to check with the valuer whether the valuation needs to be revised. We are not expecting you to assume the role of valuer. We are simply trying to ensure that the valuer has valued the property based on correct information.

Will stamp duty changes create problems for conveyancing lawyers?

In the 2015 Autumn Statement, George Osborne announced higher rates of stamp duty on the purchase of additional properties, such as buy-to-lets and second homes. The government is currently consulting on the practicalities of how the 3% stamp duty hike will work and is seeking responses from conveyancers. The deadline for the consultation is 1st February 2016 in order for the government to announce the new regime in the upcoming Budget.

Conveyancing lawyers are asked to respond to the following questions:

• Do you think that purchasers are more likely to give accurate answers to main residence questions if HMRC provides specific questions for the conveyancer to ask the purchaser?
• Would a formal declaration by the purchaser that the answers to any such questions are accurate help to increase compliance without creating undue burdens for conveyancers? How do you think such a declaration should work?
• Besides normal publicly available guidance, are there any additional products that HMRC can provide to help purchasers understand what rates of tax they will be paying on a planned purchase?

In order to administer and ensure compliance with the new higher rates, changes will be required to the existing SDLT return.

Taxpayers will have to specify that a given transaction is for an additional residential property. This will leave the SDLT return with four categories of property: residential property, non-residential property, mixed, and residential – additional property.

The government recognises that the higher rates of SDLT will create additional requirements for agents acting for purchasers. The government expects most of the additional information that needs to be obtained from purchasers will be straightforward and uncontroversial.

For example, questions about whether the purchaser (or any joint purchaser) will own more than one residential property at the end of the day of the transaction will need to be considered. This information will need to be kept up to date by the purchaser and the conveyancer during the period between instruction and completion.

One piece of information which will be required from purchasers is whether any newly purchased residential property will be a main residence and replacing a previous main residence. This would be required in a situation where a purchaser with multiple properties at the end of the day of a transaction would not pay the higher rates.

In order to determine this, agents will need to determine whether the purchaser has disposed of any residential property within 18 months of the new transaction and whether or not that disposal was a disposal of the purchaser’s only or main residence.

Ultimate responsibility for the accuracy of an SDLT return remains with the purchaser and HMRC will provide guidance on how purchasers can determine whether the disposal of a property can be considered as a disposal of a main residence. Yet these days many law firms complete the return forms on behalf of clients. Is that set to continue given the additional complexity and risk?

Conveyancers may not be best placed to judge whether a purchaser is correct about which property has been their main home. The government recognises that conveyancers are a key part of ensuring SDLT compliance and are keen to maintain this.

Conveyancing Proved Problematic in 2015 ...but it will be Easier than 2016

Conveyancing transactions in England and Wales got more complicated in 2015 as lenders more frequently introduced complex changes for conveyancers, a year-end review of The Council of Mortgage Lenders Handbook by Lexsure Ltd. shows.

The London-based software house helps solicitors better manage their firm’s risk via tools such as LENDERmonitor and COMPLETIONmonitor.

Even though the U.K. remains strong, mortgage lenders are being more cautious in their policies, regularly introducing changes that make it all the more important that solicitors are aware of particularly onerous terms that an individual lender may impose

According to Lexsure’s review, 75 % of CML lenders amended their Part II policies last year, with over 250 sections changed.  Some of the more frequent changes focused on problematic properties such as flying freeholds, properties with absentee freeholders as well as properties with short leases. Of notable concern is that 12% of lenders changed their minimum unexpired lease term with many now requiring 85 years remaining from the date of the mortgage .

Claims by lenders continue to account for around a quarter of all claims against the profession and my conversations with professional indemnity insurers reveal real concerns that conveyancing claims are not set to fall away. The increased complexity and frequency of changes is only going to boost the possibility of claims.

The Handbook was introduced in July 1999 and was proclaimed as a welcome consolidation of lender requirements, yet instructions don't stand still; they are constantly changing.

Experienced conveyancers may take it for granted; some new conveyancers may not have studied the handbook carefully, both options are dangerous. Solicitors should not assume they know what the lender’s requirements are from one transaction to the next - they should always check.

A copy of Lexsure’s Annual Market Complexity Report can be purchased here.

Reliance on CML Handbook Changes in 2016

CML Lender Kent Reliance (a trading name of OneSavings Bank plc) has kick-started 2016’s CML Handbook changes with amendments to eleven on it’s Part 2 sections.

In changes which are consistent with predictions and trends identified in Lexsure’s 2015 Market Complexity Review ,amendments were made to the following sections:

5.4.6- Does the lender accept search insurance and, if yes, what are the lender's specific requirements?

5.7.1a- Does the lender lend on flying freeholds?

5.7.1c- If the lender is prepared to accept a title falling within 5.7 and the property is a freehold flat or flying freehold, to which contact point must this be reported?

5.14.1- What minimum unexpired lease term does the lender accept?

5.20.1- Does the lender require me to report to them where the lease does not meet the CML minimum requirements for leases of roof space for solar PV panels?

5.20.3- Does the lender have additional requirements relating to leases of roof space for solar PV panels, and if so, what are they?

6.6.4- Does the lender lend where the property comes within the definition of a house in multiple occupation? If yes, what are your requirements?

8.1- Does the lender allow me to advise any of the specified third parties?

14.2.2- Which documents must I send after completion?

16.3.7b- What form of attestation clause does the lender use?

17.2.1b- Does the lender send the discharge via a DS 1 form or direct with the Land Registry?

Kent Reliance has not made so many changes to their handbook since December 2014.

To be notified as to Kent Reliance Handbook changes click here.

Phish on Fridays

‘Friday afternoon scams’ continue to be on the increase and cybercrime is set to be one of the hot areas of risk for conveyancing firms in 2016.

Such scams may involve fraudsters hacking into a law firm’s systems.This could apparently be done by the simple expediency of sending an seemingly trustworthy email with an attachment.

Once clicked, this downloads malicious software and allows the thieves to intercept emails, send emails of their own using fraudulent addresses, divert huge sums of money and stop completions going through.

It’s called Friday Fraud because they know the best time to hit is on a Friday, the busiest time for conveyancing, when employees may be less alert to fraudulent approaches.

What should a conveyancing solicitor do if a client provides new bank account details part way through a transaction? With these types of fraud on the increase, a client providing new bank account details should raise an immediate red flag. If this happens, solicitors should call and speak to their client and request an explanation for the need for the change. As demonstrated by the above, if e-mails can be intercepted, so can letters, faxes and other forms of written communication (and even write-protected electronic documents can be hacked and altered), so solicitors should also request and obtain evidence that the new account details are genuine.

A further option would be for solicitors to ask for original bank statements for the new account. Alternatively, solicitors can check with the bank to make sure that the account details and account name are correct. Some banks won’t be able to provide this information without the client’s permission, but some will acknowledge if the account name matches what they have on their records.