One broker suggested that “the regulator could get involved in setting” an industry-wide rule on the number of years asked for by lenders.
A number of lenders have extended terms from what was the industry norm of 50 to 55 years up to 80 or 90 years over the past few years.
The poll showed that 75 per cent of brokers want lenders to standardise terms on unexpired leases. Another 21 per cent of brokers say that this hasn’t been an issue for many of their clients and 5 per cent don’t know.
The poll was run in response to a challenge to lenders from the Society of Licensed Conveyancers (SLC). SLC members have encountered troubles with down valuations linked to the longer terms, which have derailed transactions in some cases.
Dominik Lipnicki, owner of broker firm Your Mortgage Decisions, said: “It is an issue and our advisers do have problems with it. Surely it would make sense to have a standard allowable term of 50 or 55 years? There’s no need for 80 or 90 years, which is unnecessarily long considering that most mortgages are two- or five-year fixes,”
“It’s overkill and it would help the market if everyone knew where they stood – perhaps that’s something the regulator could get involved in setting. It seems to me that 50 years is very sensible.
“The second part is educating the client. We meet many clients who don’t know they’re on a lease and that’s a problem. Especially if it’s a first property, they’re keen to get in rather than to study the small print,” Lipnicki added.
Adrian Anderson, director of independent brokers Anderson Harris, which covers the West End of London agreed that “it’s confusing to have differing requirements from the banks.
“Lenders ought to take a more uniform approach. It’s common knowledge that if a lease becomes less than 70 or 80 years that that property’s value starts to decline. The Royal Institution of Chartered Surveyors (RICs) valuers on the panels of all the banks are aware of this, the data’s out there. It would be easier if the banks had a standardised policy,” Anderson said.
“A lot of buyers are unaware that the property may be un-mortgageable by all of the banks on the open market. Nobody wants to buy a property where they might have trouble selling it or can’t sell it for the maximum price.
“Because we’re based in the West End the first question we ask is ‘is it share of freehold and how long is the lease?’ We’ve arranged mortgages against Cadagon Square properties, the Grosvenors and Wellcome Trust-owned properties, where the leases can be very short,” he added.
Method in the madness
However, David Hollingworth, London & Country Mortgages associate director, suggested that variation between lenders was important to ensuring differentiation in the market.
“It’s difficult to start asking for standardised terms on elements of lender criteria. It’s really up to the lender to determine its criteria in line with its appetite for certain property types and borrower profiles. That helps to bring differentiation to lender propositions and of course it’s part of the broker’s role to identify and advise on issues that could impact an application,” Hollingworth said.
Hollingworth added that leasehold properties had “hit the headlines for the wrong reasons,” and that “lenders are contending with additional issues such as escalating ground rents.”
“It’s helpful to see some making clear definitions on that front,” he added.
“As far as unexpired terms go, advisers should probably hear alarm bells for anything with less than 85 years remaining. Customer awareness would also help to flag a shorter unexpired term sooner,” Hollingworth said.
Mike Ockenden, head of secretariat at the SLC, welcomed the overall poll result. He said: “It’s reassuring that the majority of mortgage brokers support the SLC position on standardising lenders’ terms on unexpired leases. The benefits – to leaseholders, to prospective purchasers of leasehold properties, to the lawyers who act for them and the surveyors who value the properties – are self-evident.”
The SLC has asked the mortgage team at trade body UK Finance to put the issue on its agenda.
