SLC And UK Finance Collaborate To Standardise Lending Policies On Unexpired Leases
The Society of Licensed Conveyancers (SLC) and UK Finance have been working to standardise lending policies on unexpired lease terms to help ease the difficulties many leaseholders are finding when trying to resell their home.
The SLC estimate that over 1 million leases have less than 80 years remaining. In the past decade, lenders have increasingly demanded unexpired lease terms of 80 or even 90 years before they will approve a mortgage for a leasehold property.
However, previously, it was understood that an approved mortgage for unexpired leases would only require the length of the mortgage plus 25 years, which would total an unexpired lease length of between 55 and 60 years.
This now means that a million households could have lease terms that would make the property unsaleable. Again, this would mean a financial outlay to extend the lease before they are able to place the property up for sale.
Creating a standard minimum lease length would create greater clarity in the sector and provide many leaseholders with improved peace of mind.
In the interim, the SLC have highlighted that lenders who have changed their terms by increasing the unexpired lease length should notify their customers of the fact that their lease title may not be acceptable as security for a mortgage.
John Clay, SLC Board Member and Past Chairman, commented:
“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 properties.
“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 sale-ability. 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.
“There are a lot of issues that are associated with extending leases, not least of which is the cost to a lessee who may not have the resources to afford an extension. Ironically, the change in policy by some lenders means that properties on which other mortgage lenders have lent, and look to for security, may have impaired value. In some cases, existing lenders will have properties mortgaged to them which would not now be considered good security by their own standards. It begs the question will they make it difficult for the borrower to negotiate a new product when they come to the end of their existing rate?”
Should the sector ensure that a standardised leasehold term is applied to unexpired leases? Would this have a positive impact on the leasehold sector?