The committee wishes to alert practitioners to the impact of SI 47 of 2015 (Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Housing Loan Requirements) Regulations 2015) on residential conveyancing transactions where there is a secured loan.

Under clause 7(3), a lender (defined in the regulations as a regulated service provider that provides a housing loan to a borrower) is required to carry out a market valuation of the residential property on which the loan is to be secured not earlier than a period of two months before the date on which the advance under the housing loan is made. Clause 7(4) applies where a housing loan is for the purchase of land for the construction of a building, and requires a lender to undertake a valuation of the land within the same time period. Clause 4 provides for a limited number of exemptions, including loan agreements entered into prior to the date of the making of the regulations (9 February 2015).

Given the timelines in conveyancing transactions, in many cases lenders will now have to obtain a second valuation of the property prior to drawdown. This has potentially serious consequences for a purchaser who has entered into a binding contract on the strength of the original loan approval. If a revaluation resulted in a reduction in the loan, the purchaser may not have sufficient funds to complete the contract, resulting in loss of deposit and the possibility of an action for specific performance and/or damages for breach of contract.

Practitioners are advised (a) to include a special condition in the contract for sale, and (b) to warn purchaser clients that their lender will now have to revalue the property before drawdown where two months have elapsed since the first valuation and that this could result in a reduction in the loan.

Practitioners are also referred to the committee’s previous practice note of 5 June 2009, “Timelines in loan approvals and revaluation of security by lenders” and to the sample special condition, which is reproduced in the panel.

[PANEL]

This contract shall be subject to the purchaser obtaining approval for a loan of €______ from (lender) ___________ on the security of the premises, provided always that if this loan has not been approved in writing within four weeks from the date hereof, either party shall be entitled to rescind this contract and in such event the purchaser shall be refunded his deposit without interest costs or compensation thereon.

If the loan approval is conditional on a survey satisfactory to the lending institution or a mortgage protection or a life insurance policy being taken out or the lending institution being satisfied at any time prior to drawdown of the loan that its valuation of the property has not changed since the date of loan approval or some other condition, compliance with which is not within the control of the purchaser, the loan shall not be deemed to be approved until the purchaser is in a position to accept and draw down the loan on terms which are within his reasonable power or procurement.

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The committee also wishes to remind practitioners of their obligation under clause 9 of the Law Society Approved Guidelines and Agreement (2011 edition) for residential mortgage lending, which requires the same consideration to be expressed in the letter of offer as in the purchase deed/building agreement. Where there is a discrepancy, this must be notified to the lender prior to drawdown and may also result in a reduction of the loan.