Conveyancers are calling on lenders to standardise their mortgage terms on leasehold properties.
The Society of Licensed Conveyancers says that in recent years some lenders have changed their policies, requiring leaseholds to have 80 or 90 years to run before they will grant mortgages.
The SLC says this is causing major issues, with leaseholders only finding out when selling that they must extend the lease to make the property saleable.
The SLC says this is causing fall-throughs and delays.
SLC board member John Clay said: “It used to be the case that lenders would require an unexpired lease term of 50 or 55 years for leasehold properties to qualify for a mortgage, which normally represented the term of the mortgage plus 25 years.
“This meant that leasehold owners knew where they stood and also that property valuations were stable for leasehold homes.
“It is now the case that many properties coming to market have unexpired lease terms between 55 and 80 years which will affect their value and potential saleability.
“There appears to be no coherent reason for the change in lenders’ policies and indeed many lenders still apply the traditional model of the term of the mortgage plus 25 years.
“However, the changes by some lenders have resulted in the down valuation of many properties by RICS valuers, and in some cases it is causing blight.’
The SLC believes there are over 1m properties with unexpired leases of less than 80 years.
Comments (7)
Bigger issue is ground rents exceeding £250 p.a and increasing ahead of RPI.
Agree that it is onerous or perceived onerous ground rents and high maintenance charges that have caused us grief recently. Sold a one bedroom purpose built flat in relatively recent building. Service charge was £1400 – no lift, no garden to speak of, pitched roof – really could not see where expenditure was going. Got over that and agreed a sale, but then had issue over ground rent. We had correctly marketed it as having ground rent rising every 25 years at set figures. Did not help that buyer’s solicitor reported it to the lender as a doubling ground rent and they would not lend (really gone against those following all the kerfuffle over the houses being sold with doubling ground rents by developers). Took us some time to prove that solicitor had given wrong information and fortunately buyer was as determined as us to sort it out and sale did complete. Many buyers would have walked.
There is an argument that the lenders changing policy over the years has blighted leasehold properties to some extent. As the article points out, 35 – 40 years ago, lenders would accept a lease that had 25 years to run from the end of the term of the proposed mortgage. Thus, we would consider that a lease with less that 60 years to run would have an impact on value but if the lease had in excess of 60 years, no issue. Lenders now, more typically, require 80 – 90 years on a lease in order to consider a mortgage.
If you had bought a 85 year lease, say 10 – 15 years ago, in anticipation of being able to sell it now without the lease length being a problem, you are likely to be disappointed. What has changed in the intervening period is lender’s policy and, probably, greater public awareness of the implications of leasehold
“However, the changes by some lenders have resulted in the down valuation of many properties by RICS valuers, and in some cases it is causing blight.’ Absolute nonsense! The truth simply is that leases under the 85 years assumed by mortgage valuers are often worth considerably less than their long lease neighbours. To cry “blight” or “down valuation” as the cause is either a fundamental miscomprehension of the market or a wish to obfuscate the truth so that buyers can be profitably guided along a smooth but wrong path unaware of the precipice to which it leads.
There is a coherent reason. These properties are becoming impossible to sell on due to feudal leases. If they can’t be sold they have no value.
I have to disagree to a degree, WiltsAgent.
They are not becoming impossible to sell, and do have a value – but Leasehold properties become less of an asset and more of a liability as the clock ticks away the years left on the Lease.
The the flashpoint where it becomes a “short Lease”, the buyer pool is catastrophically eroded when mortgages are denied.
A property with 50 years left on a Lease which can be bought for a song compared to one with 100 years – and rented out at the same £500 per month as the one with the ‘long’ Lease isn’t worthless to an investor.
It just won’t be worth anywhere near as much as one which the Investor could sell on to refresh their portfolio in a few years.
The problem is when the seller can’t afford to sell at the price that such buyers are prepared to pay. The problem increases if the homeowner cannot afford to extend the Lease or purchase the freehold.
But that doesn’t make the property “impossible to sell” – it makes the vendor unwilling or unable to sell it.
Couldn’t agree more. No property is “unsellable”, despite any inherent disadvantages or problems, it is simply a question of price. Get the price right and you will get interest and offers, overdo the price and, particularly if a tricky market, no interest from buyers.
“Unsellable” usually means, not able to achieve a figure that the seller finds acceptable.