Formerly known as the CML Handbook, the UK Finance Mortgage Lenders’ Handbook (the “Handbook”) is an important aspect of the conveyancing process whenever secured lending is involved.
Compiled by UK Finance, the trade association for the UK banking and financial services sector and successor agency to the Council of Mortgage Lenders (CML), it sets out a lender’s requirements in any secured lending situation (such as purchase or remortgage of a property, but also sale or discharge of a standard security) and forms part of the lender’s instructions to the solicitor. For that reason it is important for anyone dealing with conveyancing transactions, no matter how experienced, to keep their knowledge of the Handbook and its requirements regularly refreshed.
The Handbook itself
The Handbook as it applies to Scotland is in two parts: Part 1 contains requirements which are uniform to all lenders, whilst there is a separate Part 2 for any lender-specific requirements. The Handbook can be viewed online for free at https://lendershandbook.ukfinance.org.uk/lenders-handbook/ – and even searching for “CML Handbook” will still take you to the current version.
Part 1 has eighteen titles and is about fifteen pages long when printed out, which can be done easily from the website. Part 2 varies in length depending on the lender and contains lender-specific details relating to the provisions of Part 1, such as contact details for different departments or whether the lender will accept search insurance. Parts 1 and 2 can be viewed and downloaded alone or together. Part 3 does not apply in Scotland.
Most of the Handbook’s requirements relate to a purchase or remortgage, but the Handbook is not limited to those circumstances. Paragraph 16 addresses transactions during the life of the mortgage and paragraph 17 deals with discharges, so make sure you understand whether the Handbook applies to your transaction.
Risks of non-compliance with the Handbook
Failure to comply with the provisions of the Handbook can be a serious matter and may lead to claims for breach of contract and breach of professional duty by a firm or the solicitor involved. Following the 2008 recession there was an influx of claims against the Master Policy alleging failures by conveyancers to follow the requirements of the then CML Handbook, resulting in major losses to the policy and the profession.
With both the emergence from Covid and other global events causing straitened economic circumstances, it is now more important than ever for staff working on conveyancing transactions to familiarise themselves with the Handbook, and for firms to make sure that that is happening and to provide training where necessary.
Some of the Handbook’s provisions
A sample of the provisions of the Handbook are highlighted below, but this is by no means an exhaustive list and is intended only to give an idea of the range of matters covered by the Handbook. Any guidance offered here is nothing more than that and it must be stressed that practitioners should take care to check that they have complied with the Handbook’s requirements in full.
For illustration, some of the provisions of Part 1 of the Handbook are as follows:
1.6 The borrower and the person who will be the registered owner are to be one and the same person, subject to any lender-specific allowances in Part 2.
3.2 If the seller's solicitors are unfamiliar to you, you must verify them through a legal directory or the Law Society of Scotland.
4.1.2 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 inform the lender immediately.
5.3.2 Any property enquiry certificates relied upon must be no more than three months old at settlement.
6.3.1 You must make sure the purchase price accords with what is in the lender’s instructions.
7.1 There must be no Matrimonial Homes or Civil Partnership Act occupancy rights which would have priority over the lender’s standard security.
11.2 You should explain the legal implications of the standard security and any other documents to be signed to the borrower.
14.3.1 You must keep your file for at least six years from the date of the mortgage before destroying it. (This of course should be treated as a minimum and will also be subject to the Law Society of Scotland’s requirements about retention of files.)
16.4.1 You should advise the borrower that letting is prohibited without the lender’s consent.
The above is intended only to give a flavour of the Handbook’s requirements. There is really no substitute for reading through and familiarising yourself with the Handbook itself, and it is strongly recommended that you take some time to do so if you have not recently. If you are a manager, you may also want to consider organising refresher training on the Handbook for your team.
The Handbook and the Standard Clauses
The Standard Clauses are of course drafted to be compliant with the Handbook, however that cannot be relied upon on its own, and it is necessary to know the requirements of the Handbook that are covered by the Standard Clauses to avoid accepting revisals which would conflict with them.
Practitioners should be particularly wary of the following:
2.1 Improvement or repair grants are to be notified to the lender if required by paragraph 6.13 and Part 2 of the Handbook.
8.1 These requirements are similar to paragraph 5.4.1 of the Handbook, which also requires the property to have the benefit of necessary consents, so any issues with this clause should be reported to the lender.
11.4 Paragraph 6.8.2 of the Handbook requires the property to be served by a public sewer or by private sewerage arrangements which have the necessary approvals.
21.1 The PEC referred to here is required to be no more than three months old, as also required by paragraph 5.3.2 of the Handbook.
28.1 This relates to paragraph 5.1.1 of the Handbook concerning the minimum six-month period of ownership by the seller.
As with the sample provisions of the Handbook listed above, this should not be taken as an exhaustive list nor as a guide to revisals using the Standard Clauses. Using the Standard Clauses is not a substitute for reviewing the Handbook requirements.
Remember also that there are numerous requirements in the Handbook which do not fall within the scope of the Standard Clauses, such as the paragraph 1.6 requirement that the borrower and the person to be registered as owner be one and the same.
Conveyancers’ obligations in respect of the Handbook
It is important to remember when acting in a purchase or remortgage that the lender is just as much your client as the borrower and that you have a professional duty to follow their instructions, of which the Handbook forms part.
There are numerous circumstances which the Handbook requires be reported to the lender, and if in doubt we recommend reporting anyway. Paragraph 2.3 requires that “If you need to report a matter to us you must do so as soon as you become aware of it so as to avoid any delay.” It goes on to require that where you believe a matter is not adequately provided for in the Handbook you should report to the lender with a concise summary of the legal risks, including the provision of the Handbook which you think inadequately covers the situation, and your recommendation as to how the lender should protect its interest.
Importantly, paragraph 2.3 also emphasises that reporting a matter is not enough and that you must await the lender’s further written instructions on that matter before proceeding. Receipt of monies without instructions that a matter is accepted cannot be taken as an acceptance. It also explicitly recommends not concluding missives before relevant matters have been reported, as the lender may have to withdraw or change the mortgage offer.
Above all it is crucial for solicitors and other staff working on conveyancing transactions to be aware that the Handbook affects their work and to familiarise themselves with its terms, so that they can keep themselves on the right side of the Handbook’s requirements.