Bank conveyancing panel requirements re Absentee Landlord Indemnity Insurance
Yorkshire Bank Home Loans and Nationwide, like the majority of mortgage companies, dictate their own requirements when it comes to absentee landlord indemnity insurance. This page sets out to enlighten property law firms on the various lender approved list of panel lawyers where the title for the the property to be mortgaged includes absentee landlord. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, whether it be Lloyds TSB, Barnsley BS or HSBC. The information on this page Is not to be read as absentee landlord indemnity insurance advice.
Need help with absentee landlord indemnity insurance from your lender?
As a solicitor on a lender panel you must report to the mortgage company (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the landlord is either absent or insolvent. If the mortgage company are to lend, they may accept missing landlord indemnity insurance. Banks’ attitudes are changing however and an increased number of banks have changed their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards to absentee landlord insurance. Variousmortgage companies previously stated that, they would have lent on an absentee landlord, whereas they will no longer do so. See 5.14.15 to see if the bank accept indemnity insurance if the landlord is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| HSBC UK Bank | Yes, indemnity insurance is acceptable. |
| LendInvest | Yes. However, your attention is drawn to 9.1 below. You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title. |
| Manchester Building Society | Yes, the limit of indemnity must equal the purchase price or valuation. |
| Paratus | We will accept such policies in limited circumstances on a case by case basis. The policies must be adequate and if this means that the Policy is to be bespoke (i.e. not a self-write) then it is our requirement that such a policy is to be taken. You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title. |
| Scottish Building Society | Yes, provided you are satisfied that such insurance is a solution to the difficulty identified and you can give an unqualified Certificate of Title. You must retain a copy of the insurance policy on your file. The insurance must meet the requirements of section 9. |
| Royal Bank of Scotland | Yes. |
| RBS- First Active | Yes. |
About Absentee Landlord Indemnity Insurance
Many property lawyer throughout the UK regularly rely on missing landlord policies to help move the conveyancing process when the freeholder or landlord of land or premises is insolvent, absent or where Bona Vacantia applies in relation to defunct companies. This results in an inability to pay ground rent and seek permission to lease assignments and alterations to the property. The loss arises because the landlord may request ground rent or seek forfeiture of the lease alleging breach of covenant should they subsequently emerge.
Virgin Money and Barclays like most lenders, obligations require that where absentee landlord indemnity insurance is effected:
- your practice must send a copy of the absentee landlord indemnity insurance to the mortgagor and explain to the mortgagor why the absentee landlord indemnity insurance policy was effected and that a further policy could be mandatory if there is further lending against the security of the property
- the absentee landlord indemnity insurance policy must be in favor of the mortgage company and, if possible, for the benefit of the borrower and any next registered proprietor or mortgage company. If the borrower will not be protected by the absentee landlord indemnity insurance policy, you must advise the borrower of this fact.
- your practice must explain to the mortgagor that the borrower will need to comply with any conditions of the absentee landlord indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the insurance
- your practice is obliged to disclose to the insurer all relevant information which you have acquired
- the absentee landlord indemnity insurance policy must be effected at no charge to the mortgage company
- the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- your firm must approve the terms of the absentee landlord policy on behalf of the mortgage company
- the absentee landlord indemnity insurance policy should not incorporate terms that you know would void or compromise the interests of the bank
| Lender | Requirement |
|---|---|
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Chelsea Building Society | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Coventry Building Society | Minimum of the value of the property. |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Kent Reliance | An amount at least equal to 110% of the mortgage valuation. |
| LendInvest | An amount at least equal to the valuation of the property. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Molo Finance Buy to Let | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgages. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Pepper Money | An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Scottish Building Society | Amount of mortgage plus 25%. |
| Royal Bank of Scotland | An amount equal to the value of the property. |
| RBS- First Active | An amount equal to the value of the property. |
| RBS - Virgin One | An amount equal to the value of the property. |
Non lender-specific considerations
The extent of the terms for absentee landlord indemnity insurance are explained in the policy document. Conveyancing Practitioners are obliged to point your non-lender client to the absentee landlord indemnity insurance policy paperwork. The intention of absentee landlord indemnity insurance is to grant indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to determine that it is as it should be. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the absentee landlord indemnity insurance policy. It is well worth checking that the time frame is correct.Absentee Landlord indemnity insurance: Significant aspects and benefits:
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee landlord indemnity insurance schedule. Absentee Landlord indemnity insurance Policies should be checked for the following- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- The out of pocket expenses of altering or demolishing all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
- Liability for damages or compensation incurred in any action in respect of the risks specified in the absentee landlord insurance, as well as solicitors charges.
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the absentee landlord insurance, to the extent that such costs are rendered abortive by court order.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the absentee landlord policy.
- Market value reduction resulting from the successful enforcement of the risks specified in the absentee landlord policy.
Due diligence should extend to checking that the answers on the application form are correct. Regardless of how remote a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form thoroughly before any claim is admitted.
Absentee Landlord Indemnity Insurance has limitations - Supplemental considerations
Absentee Landlord Indemnity insurance isn’t a solution to all of the relevant problems.The content set out above covers to properties in England and Wales.