The call came after some lenders raised the required length of unexpired leases to 80 or even 90 years, with a knock-on effect on valuations.
“The old protocol was that you had the term of mortgage plus 25 years or 30 years – so 50 to 55 years. Go up to 80 or 90 years, people are putting their property on the market, and purchasers then ask for a mortgage and find lenders have policies all over the place,” said Mike Ockenden, head of secretariat at the Society of Licensed Conveyancers (pictured).
“Ultimately you start affecting property values in a way that’s really quite unhelpful. Valuers get caught in their own Catch-22. What are they valuing the property at, are they valuing it with an unexpired lease of 50 or 60, or saying, ‘we value on 80 or 90 and come up with impaired value?” Ockenden said.
“We haven’t been able to find any logical reason why there should be a change in policy because a number of lenders are still with the old regime,” he added.
The SLC has asked the mortgage team at trade body UK Finance to put the issue on its agenda.
“If the lessee has impaired value and must extend the term of the lease, that can be expensive and add delays. In some cases it has caused transaction failure and the whole chain’s collapsed,” Ockenden said.
“Lenders doing their own thing has created an entirely unnecessary disturbance in the market,” he said.
The change in policy may result from lenders seeking to introduce more conservative lending criteria. This could be to sure up debt securitisation or as a result of concerns over inappropriate leases that have been offered on some new builds.
“People are thinking we’ve got to be more conservative in our lending decisions, without really understanding the underpinning risks. Why on earth wouldn’t you go back to what was recognised as best practice historically? Then freeholders, leaseholders, lenders, conveyancers, and particularly valuers in terms of attributing value to the lender, everybody in the process knows exactly where they stand,” he said.
