When considering lending on new build, or converted properties, lenders will require evidence that the build has been completed to a satisfactory standard, by an appropriately qualified professional. Lenders will also want to have assurance that they are protected against any losses arising from defects in the building.
Lenders' requirements regarding newly built and newly converted properties are set out in the CML Lenders Handbook for conveyancers. This is because the conveyancer, acting on behalf of the lender, checks that these requirements are complied with, If the property has been built or converted within the past ten years, or is to be occupied for the first time, lenders will generally require that it was built or converted with the benefit of a warranty /indemnity scheme acceptable to them. Lenders will indicate acceptable schemes in the lenders handbook.
For the avoidance of doubt, CML does not approve or endorse warranties and schemes. It is up to the individual lender to decide which schemes they are prepared to accept.
Where the property does not have the benefit of a scheme and has been built or converted within the past 6 years, conveyancers will check whether this is acceptable to the lender and if so, that the CML Professional Consultant's Certificate (PCC), or other such forms as acceptable to the lender, has been provided by the professional consultant monitoring (or who monitored) the build.
Below are some considerations for lenders in relation to warranty products. It also sets out the general view as to when it is appropriate to use a PCC, if that is an acceptable recourse for the lender.
Warranty and indemnity schemes - lender considerations
NB: this is for general information only. Each lender will have their own individual requirements and additional considerations.
- The length of the cover period (the industry standard is currently 10 years)
- The process to ensure build quality and compliance with building regulations, such as the inspection regime
- The financial limits of the cover
- The consistency of cover of the period (often an initial period is covered by the builder, after which it reverts to the warranty provider alone - lenders would want to ensure a consistent level of protection)
- What elements of cover are included (for example, builder's insolvency; temporary accommodation costs, etc)
- Information which provides evidence of financial stability
- Confirmation that the warranty provider (and broker, if relevant) have evidence of FCA authorisation
- Any evidence of claims experience
The Professional Consultant's Certificate
Lenders may be prepared to lend on property if it is not covered by a warranty, if it has been supervised by a relevant professional. The relevant professionals are listed in the CML Lenders Handbook and are as follows:
- fellow or member of the Royal Institution of Chartered Surveyors (FRICS or MRICS); or
- fellow or member of the Institution of Structural Engineers (F.I. Struct. E or M.I. Struct. E); or
- fellow or member of the Chartered Institute of Building (FCIOB or MCIOB); or
- fellow or member of the Architecture and Surveying Institute (FASI or MASI); or
- fellow or member of the Chartered Association of Building Engineers (C. Build E MCABE and C. Build E FCABE); or
- member of the Chartered Institute of Architectural Technologists (formerly British Institute of Architectural Technologists) (MCIAT); or
- architect registered with the Architects Registration Board (ARB). An architect must be registered with the Architects Registration Board, even if also a member of another institution, for example the Royal Insitute of British Architects (RIBA); or
- fellow or member of the Institution of Civil Engineers (FICE or MICE)
The professional will need to sign a Professional Consultant's Certificate, in the form set out on the CML website.
It is important to note that:
- Of those lenders that accept a PCC, most will only accept the use of a PCC on very small (on or two unit) developments. A warranty will otherwise be required.
- Retrospective PCC's are not acceptable.