The CML lenders’ Handbook provides comprehensive instructions for any professional who is acting on behalf of lenders in residential conveyancing transactions.
On 30th November 2015, the Council of Mortgage Lenders (CML) will adjust part 2 of the Handbook, after the removal of the ability of an individual CML member lender to impose specific building insurance requirements. Consequently, there will no longer be an additional list of requirements from the lender relating to buildings insurance in part 2 of the Handbook.
The changes will only relate to certificates of title lodged from and including 30th November 2015. Similar changes seem likely to be made in Northern Ireland and Scotland.
Clause 6.14 in part 1 of the CML Handbook will remain – solicitors are to continue to make reasonable enquiries of the borrower that buildings insurance cover has been arranged for the property, no later than completion.
Therefore, after 30th November 2015 solicitors and conveyancers who have been instructed to act for lenders on the basis of the Handbook, will retain the obligations to remind the borrower that they must:
- Have buildings insurance in place in accordance with their mortgage conditions no later than completion.
- Remind the borrower that the cover must be maintained for the whole of the mortgage term.
There is concern that the removal of this obligation could leave lenders exposed, particularly with lenders likely to be more alert to the risk of inadequate insurance cover as they prepare for Flood Re. Flood Re is expected to make lenders require more reassurance on insurance, not less. Subsequently the likely outcome of these changes is that lenders may try and impose insurance checking requirements through different methods. For instance they may attempt to impose bespoke instructions on their solicitor on top of the existing CML requirements.
President of the Law Society, Jonathan Smithers, said of the upcoming changes:
“We welcome the upcoming removal of individual lenders’ building insurance requirements from the CML Handbook. It is a logical progression for solicitors no longer to check the insurance details against lenders’ own additional lists of requirements given that borrowers increasingly obtain insurance online, and frequently change their buildings cover during the lifetime of the mortgage.
“The obligation on solicitors to make reasonable enquiries to ascertain that the property will be covered from completion, and to remind the borrower that they need to keep the property insured throughout the term of the mortgage, should be sufficient and proportionate to the risk involved.
“The removal of the requirements not only helps solicitors standardise the conveyancing process, it brings the Handbook in line with the realities of modern home insurance purchase.”