Sales falling through due to inconsistency from lenders on leases

Mortgage lenders need to standardise their policies in relation to leases length in order to stop sales falling through, say experts.

Mortgage lenders must standardise their policies regarding unexpired lease terms in order to stop sales of leasehold properties falling through, says a conveyancing body.

Lenders used to typically require a lease with more than 50 or 55 years on properties to qualify for a mortgage. This would usually represent the term of the mortgage plus 25 years.

However, the Society of Licensed Conveyancers has accused some lenders of changing their policies to require the period of unexpired leases to be 80 or even 90 years, according to a report in Estate Agent Today.

The Society says this is causing major problems for leaseholders. Many of whom only find out when they come to sell their properties that they need to extend their leases.

The impact of this causes delays to the buying and selling process. And in some cases causes the sales to fall through.

Understand the pros and cons of extending your lease, when and how to do it

Changes hitting property values

The Society’s spokesperson John Clay says these changes are having a negative impact on the prices of leasehold properties.

He says:

“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.”

Extending your lease: A step-by-step guide

More than one million homes could be affected

The society doesn’t have figures on how many properties may have unexpired leases of less than 80 years. However, it believes the number could be over one million.

In a bid to solve the problem, the society has asked UK Finance – a trade association for the UK banking and financial services sector – to engage with its members on possible standardisation of policies.

What should I do?

If you own a leasehold property and are planning to move house, it’s essential to check as soon as possible how many unexpired years the lease has left. That way if necessary, you can extend it before you put your home on the market.

And if you’re looking to buy a home and the property you fall in love with is leasehold? Likewise, you should enquire immediately how many unexpired years are left on the lease and consider asking the homeowner to start the lease extension now (as you won’t be able to extend the lease until you have lived there for 2 years). Our guide on getting a mortgage on a leasehold property is a must read.

HomeOwners Alliance Chief Executive Paula Higgins explains:

“We have been highlighting this issue for years and warning home buyers that if the property they find has a lease of less than 80 years then beware as it will be a struggle to get a mortgage. Home owners also need to dig out their paperwork and check the length of their lease. The longer they leave it before extending their lease, the more expensive it will be.

“The leasehold system is outdated, unfair and finally being investigated by Government. In the meantime, home buyers need to make themselves aware of what they are buying and the costs, now and in the future of owning a leasehold.”

Kindly shared by HomeOwners Alliance (HOA)