On 13 February 2025 Nationwide Building Society made a few changes to their UK Finance Handbook instructions. They added in some new requirements relating to restrictive covenants and mortgagee protection clauses.
In this blog, we look at the impact of those changes, and why lender’s conditions are so important when you’re buying a property.
What is the UK Finance Mortgage Lenders’ Handbook for Conveyancers?
Unless you’re a conveyancer, you’re probably not aware of the UK Finance Lenders’ Handbook. It’s designed to be a comprehensive book of instructions for conveyancers when we act on behalf of lenders in conveyancing transactions.
There’s a Part 1 for general instructions, and a Part 2 for lender specific instructions. So, when we act on behalf of any particular lender, we check the provisions in Part 2, to make sure we comply with everything they want us to do.
What changes did Nationwide make?
In February, Nationwide updated a clause in Part 2 which said that they will require a deed of variation, or a side letter, in certain circumstances. Those circumstances are when there’s a leasehold property and the lease doesn’t include a Mortgagee Protection Clause.
The actual wording is:
“Where in your professional judgement you deem a lease to require a Mortgagee Protection Clause and it does not, we will require a Deed of Variation to include an appropriate clause. Should this not be possible, you may arrange for the landlord / managing agent to enter a side agreement.”
Although, thankfully, they did then reconsider, and their requirements now state as follows:
“Where in your professional judgement you deem a lease to require a Mortgagee Protection Clause and it does not, we will require a Deed of Variation to include an appropriate clause. Should this not be possible, you may arrange for the landlord / managing agent to enter a side agreement. We may consider an indemnity insurance policy, however the policy should be provided to us for approval along with an explanation as to why a Deed of Variation or the Side Agreement is not possible.”
What is a Mortgagee Protection Clause?
A mortgagee protection clause is a provision in the lease which gives the lender time to fix a breach of the lease before the landlord can take steps to forfeit the lease.
Lenders think this clause is important because the lender has no control over whether or not the tenant breaches the terms of the lease. If the tenant does breach the terms, in theory the landlord can end the lease and take possession of the property.
That means that the lender’s charge is no longer secured against the property, and they cannot recover their investment in the property.
Is a Mortgagee Protection Clause necessary?
There’s an argument that mortgagee protection clauses are unnecessary because the lenders already have the protection granted by these clauses in the Civil Procedure Rules, which govern litigation in the UK.
It seems to be superfluous if there are already protections in place for lenders.
Why was the change controversial?
The change caused quite a stir in the conveyancing world, mainly because conveyancers felt that the new requirements would slow down the conveyancing process unnecessarily.
Normally, lenders accept indemnity insurance where the terms of the lease are unsatisfactory. This is fairly straightforward to arrange. Now Nationwide would prefer that we prepare a deed of variation to insert a mortgagee protection clause into the lease, or that we draft a side agreement for the landlord to sign.
Both options are more time consuming and may make the process more expensive for home buyers. It can take some time to negotiate the terms with the landlord, and in some cases the landlord will charge an additional fee to enter into these arrangements. There’s also the cost of drafting the documents and the time it takes to arrange signatures.
Why lenders’ conditions are so important when buying a house
Most people who are buying a house will need the help of a mortgage from a reputable lender. For their side of the bargain, lenders want to be confident that their loan is protected.
Conveyancers help the lender to understand if there are any risks with the security of their loan. And we do that by following the guidance that each lender gives us in the handbook. They tell us what they want us to report on, and in which circumstances they will accept an indemnity policy.
As the recent change from Nationwide highlights, the conditions vary slightly from lender to lender, and these small changes can affect the overall speed and cost of the transaction.