Thursday, 1 December 2016

HSBC Introduces Independent Advice Requirements for 'Unequal' Borrowers

In a recent change to their CML Handbook Part 2 requirements, HSBC have imposed new obligations on their conveyancing panel when it comes to advising joint borrowers.

One might expect Section 8.1 (‘Does the lender allow me to advise any of the specified third parties?’) to focus solely on 3rd parties. Not so in the case of HSBC who adjusted their requirements to read:

Yes, provided that you are satisfied that you do not have any conflict of interest which prevents you advising the third party fully. If this is not the case you must arrange for them to see an independent conveyancer.

Direct charges - We require any borrower who is a legal owner of the property but who will not personally benefit from the loan either at all or equally with the other borrowers to obtain Independent Legal Advice where either the amount or portion of the loan from which they will not benefit exceeds £5,000.

Indirect charges – Where a Mortgagor of the property is not a borrower, we require that person to obtain Independent Legal Advice.

All cases - You must strongly recommend to any person intending to execute a Letter of Consent and Postponement by Deed to the mortgage that they obtain Independent Legal Advice

I am particularly surprised with the wording ‘We require any borrower who is a legal owner of the property but who will not personally benefit from the loan either at all or equally with the other borrowers to obtain Independent Legal Advice where either the amount or portion of the loan from which they will not benefit exceeds £5,000’.

It would appear that when acting jointly for HSBC and borrowers, it is necessary for any borrower, where the inequality of contributions is £5000 or more, to seek independent legal advice.

There is nothing new about the particular issue in that lawyers encounter situations where couples buying homes are contributing in unequal shares. Lawyers often advise one of the joint owners (who may not regard the mortgage as being anything to do with them at all) of their personal liability to the lender in any event. I suspect that lawyers do not generally regard such situations as demanding independent legal advice for the party who was not benefiting from the mortgage, but would always make sure that there was careful, written advice to the effect that both parties are equally liable to the lender.

Albeit that many lawyers may recommend that one of the joint owners with differing contribution (or a non-benefiting borrower) to take independent advice, this new situation is distinct for the following reasons :

  • Although it is best practice to recommend that borrower with unequal contributions take independent advice, in this HSBC situation the firm's liability in this area extends to the lender rather than being limited to the borrower clients
  • Outside of the HSBC situation one might recommend that one of borrowers take independent advice (and you may have something countersigned by the client acknowledging that advice). I suspect that many firms would feel as long as they recommended that  independent advice be taken that would suffice. In this situation HSBC require independent advice be obtained.
  • I have my doubts whether lawyers concern oneself with unequal contributions on a remortgage but this clause obliges the firm to go back to the original contributions.

Without wishing to overplay the impact of the change, I am concerned that the conveyancing lawyer acting is now be placed under an obligation to make even more detailed enquiries as to the relative contributions of joint owners. Hitherto, the very good lawyers would be careful in their advice about the ways in which property can be jointly owned, but have put the onus on the borrower clients to inform them if they feel that their relative contributions to the purchase price warrant something like a tenancy in common in unequal shares. I suspect that many lawyers had not considered it to be their duty to carry out a detailed investigation as to the contributions, but rather to alert joint owners to the options.


To see the latest CML Handbook Part 2 changes please click here

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