Short lease flats and houses – the problems with getting a
mortgage
When you come to sell your leasehold flat, if you’re left with a short lease [especially if the remaining lease term has fallen below 70 years] you may have a real problem finding a purchaser willing to offer a reasonable price.
Here at Bonallack & Bishop, our leasehold extension team are genuine specialists and one of the country’s leading teams – lease extension and enfranchisement work is all they do.
We regularly represent leaseholders and freeholders – and have helped thousands of people with extending their leases nationwide over the last 20 years – so you can rely on the expertise of our team.
Click here to read some reviews of our lease extension solicitors from satisfied clients
Got a lease extension question? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
Click here to read more about lease extension.
Why is getting funding for UK leasehold extensions a problem?
One of the main reasons is that very few lenders will offer a loan for a flat where the lease has fallen below 70 years.
To make things more complex, banks and building societies have different policies on how long the remaining lease needs to be before they will grant a loan. Take a stroll down any high street and ask various lenders the question, “What minimum unexpired lease term do you accept?’ and you’ll get a variety of answers [[and to make it worse, these lending policies regularly change].
You will find below a list of eight of the major lenders and what were their policies on lending on leasehold properties when we recently checked – along with some really interesting research about the mortgagability for short lease flats.
However there is an answer……………………………….
Leasehold extension – the solution to your short lease problems
In short, you have three options when looking at selling short lease property
1. Simply sell to the highest bidder
But that will almost certainly reduce the sale price and, depending on how low the lease is dropped, it may mean that only cash buyers are available – and that will almost certainly mean selling at a really significant discount. This is the last resort and, given the two alternatives below, should be avoided wherever possible
2. Extend your lease yourself
This is the most cost-effective way of dealing with a short lease problem and it also means that you have complete control of the process. However the downside is that this will take some months (six months+ on average for a statutory or formal lease extension) and probably less if you agree with your freeholder to extend your lease on an informal or voluntary basis – though any voluntary lease extension does have significant risks in that you are entirely dependent on the goodwill of your freeholder, who can withdraw their consent any time.
Click here to read more about process of statutory lease extensions
3. Apply for the leasehold extension yourself and pass on the benefit of the leasehold extension application to the purchaser on completion
This involves your solicitor serving a Notice on your freeholder. On completion of the sale of the flat, you and the purchaser execute what is known as “a Deed of Assignment” of the benefit of that Section 42 Notice – this means that the purchaser can simply take over your application for lease extension upon completion, and they can then carry on with the procedure for extending the lease as if they had already owned that flat for at least 2 years [because 2 years actual ownership is generally required before you qualify for the right to extend your lease].
This has the 2 big advantages over option 2 above in that you don’t have to wait to complete the lease extension, and in addition you don’t have to fund the lease extension yourself – that is done by the purchaser.
However the disadvantage with this route, is that the purchaser will probably still look for some kind of discount – because if they are going for a mortgage, the mortgage company will only loan on the basis of the current remaining lease term – not the length of the lease after lease extension has been completed.
Problems with absentee freeholders – and the solution
Most lenders are extremely reluctant to lend if there is an absent freeholder. This causes plenty of potential issues – including potentially severe problems with lease extension, enfranchisement, block management, and insurance.
If you have this problem – don’t worry. We have the solution – the Vesting Order.
Click here to find out more about vesting orders and how we can help you deal with the problems of missing freeholders
Leasehold extensions and mortgage availability – recent research
We work closely with specialist lease extension valuers nationwide, one of the best of which is Essex and London based surveyors, Hortons. And they have just produced some really interesting data on the subject.
Their research was based on 100 UK High Street and smaller more specialist lenders – and was carried out in September 2019.
Here are their main conclusions – please note, the research is based on a theoretical flat with no structural defects or cladding issues and without any punitive ground rent, and is based on a residential purchase, rather than buy to let.
◊ A remaining term between 75 and 85 years
What was surprising is that even with a relatively long remaining leasehold term of 85 years, the number of mortgage products available is significantly reduced – with, on average, only 62% of the mortgage market available.
◊A remaining term between 65 and 75 years
It was really noticeable that once the lease starts dropping, there are far fewer mortgage products available. In fact when the mortgage drops to 65 years, only 47% of mortgage products are available.
And what’s more, Hortons reckon that they “expect the number of available rocks to fall over the coming 12 months” as a result of recent cases at the First Tier Property Tribunal.
◊A remaining term between 50 and 65 years
This is where it starts to get really difficult. If you’re looking for a loan, only 5% of the mortgage market is available.
◊What about the term under 50 years?
Hortons did not even research that – and that says it all!
Additional problems with mortgage availability for short leaseholds
Although the above research relates to the number of UK mortgage products available, what it doesn’t deal with is the fact that in addition to the problem of a significantly reduced number of mortgage products, it’s highly likely that the conditions surrounding the landing will be tight – often much tighter.
Short lease properties – 6 of the leading lenders policies
NB. The selected rates below were accurate as at April 2016.
The Council of Mortgage Lenders Handbook used to provide an up-to-date list of lending criteria for leasehold property for approximately 97% of lenders in England and Wales. Unfortunately since the CML was absorbed into UK Finance, that listing is no longer available. However here are some extracts from the old Council of Mortgage Lenders Handbook. While these criteria may not all be up-to-date, they do give you a flavour of how difficult it is to get a mortgage on a short lease property in England and Wales.
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Nationwide Building Society
The minimum unexpired lease term is 55 years subject to at least 30 years remaining at the end of the mortgage term.
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Coventry Building Society
When extending a lease, a minimum of 70 years unexpired lease is required.
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Bristol & West
A 70 year lease is minimum unexpired term for leasehold extension.
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Abbey National plc
In most cases the minimum unexpired lease term is 55 years unexpired from completion subject to at least 30 years remaining at the end of the mortgage term.
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Halifax
Mortgage Term plus 30 years is the criteria here for leasehold extension.
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Bradford & Bingley plc
A minimum of 50 years is required here at the commencement of the mortgage and at least 35 years at the end for loaning on leasehold extension or purchase.
It makes sense to shop around! It also makes sense to take positive steps to extend your lease now!
UK Leasehold Extensions – Lease Extension Mortgage Issues
Extending your lease involves a complicated area of law, and even the vast majority of experienced conveyancing solicitors, rarely deal with lease extensions. That’s why you need to consult specialist lease extension solicitors who will have extensive knowledge in this area.
Here at Bonallack & Bishop we are very unusual. We have a team of five lawyers who deal with nothing else but lease extension and lease enfranchisement – and currently handle around 500 UK leasehold extensions for clients nationwide each and every year. That means we have helped thousands of people like you with extending a lease on flats with short lease terms remaining. And what’s more, our experts are always happy to provide you with free initial advice on the phone about all aspects of leasehold extension.
Click here to read more about how to extend a lease
So if you’re thinking of extending your lease, or are considering buying a flat with a short lease term, and have some questions – call us today on FREEPHONE 0800 1404544 for some free initial no strings attached specialist legal advice. What could be simpler?
