Acting For Your Lender – Why And What We Report.

With over 50% of the population in the United Kingdom owning a property, many are reliant on a mortgage to enable them to make this purchase.

A mortgage is a loan used to buy a home, or borrow money against the value of a home you already own. It is a legal agreement and a lender will loan you a large sum of money over a set period of time.

When purchasing your property subject to a mortgage, the lender will require a first legal charge to be registered on the title to the property, as well as a restriction which acts as security for the loan. This ensures that their charge ranks in priority on the property deeds to ensure the mortgage is repaid upon any sale. The restriction will also prevent any sale or disposition without consent of the lender.

The lender will need to be satisfied that the property you are purchasing has good title and there are no defects which would adversely affect the future value and saleability of the property.

Whilst the lender will deal with the valuation of the property, the lender will issue a copy of your mortgage offer to your solicitor, and ask them to act on their behalf, as well as you as the buyer. In essence they require your solicitor to ensure the property is adequate security for the loan. Therefore your solicitor will be required, by the lender, to investigate the property’s title as well as searches and survey. This means your solicitor is required to act in the best interests of your lender as well as in your best interests as the buyer.

Each lender will have their own set of requirements to follow. The UK Finance Mortgage Lenders' Handbook (UKF Handbook) contains detailed instructions on each aspect of the transaction. Your solicitor will regularly review the handbook to ensure the requirements are known at the outset of the transaction, or, if your lender is a building society the “Building Societies Association” requirements.

There may be certain factors that your solicitor has to report to your lender as part of their obligation to the lender. These factors include any defects on the title and anything that could affect the lender’s security.

Factors reported to a lender include, but are not limited to;

• Any change in your circumstances
• Any gifts / loans you may be receiving to purchase the property
• Lack of planning permission / building regulations
• Lack of listed building consent
• If there is an access way with inadequate rights
• If there is a risk of flooding
• Any restrictive covenants that adversely affect the property
• Properties with unusual construction
• Any structural issues
• If your property is undervalued or overvalued
• If the property is leasehold and there is:
  • doubling ground rent provisions
  • inadequate forfeiture provisions
  • cladding
  • an inadequate fire risk assessment
  • significantly high ground rent and/or service charges
  • a short period un-expired term remaining on the lease

There are no hard and fast rules on whether the defect is definitely reportable to your lender. It depends on the individual policy of each lender. Therefore, before reporting to your lender, your solicitor will carefully refer to the UFK Handbook or the Building Societies Association, to determine whether the defect is indeed reportable and whether an indemnity policy would be acceptable to the lender and any other requirements of the lender.

If the defect/risk can be dealt with by way of an indemnity policy, it may be the case that we will still need to report the issue to the lender, but advise them we intend to proceed with a policy to protect the buyer and lender, and we would ask whether they consent for us to proceed on that basis.

As a result of being required to report factors to your lender, there is a risk that your lender could withdraw their mortgage offer, or change the terms of the same, especially if they determine the defect to be a risk to their security. Your solicitor will wait for a response from your lender before exchanging contracts, agreeing a completion date and requesting your mortgage funds.

Before reporting any matter to your lender your solicitor would make you aware of this. If you refuse to allow your solicitor to make any necessary report to the lender your solicitor would be required to cease acting for you, as they would no longer be able to act in the best interests of the lender and there would be a conflict.

Lenders have a “panel”, which is a list of solicitors who are authorised to act on their behalf. The firms on their panel list are firms which they trust and which have been assessed to be reliable, have a good reputation and financially dependable. There are also a handful of lenders that will insist you use a solicitor of their choosing and do not permit you to instruct your own solicitor, however this is rare.

Here at Lanyon Bowdler we sit on the panel of all major lenders. If you would like further information as to whether we sit on your preferred lender’s panel, and whether we can act for you in your purchase, please get in contact with us.

There is an episode of our podcast The Legal Lounge, which discusses the common questions asked by people looking to buy a property, along with the steps they take to secure a smooth transaction. You can listen here.