The Intermediary Mortgage Lenders Association (IMLA), whose membership includes 16 of the 20 largest mortgage lenders, has sent a clear message to developers; onerous terms and conditions in freehold sales contracts could scupper mortgage deals.
IMLA’s executive director Kate Davies (pictured) said: “It’s important to ensure that developers make absolutely clear up-front what services are to be provided in return for payment of the fees, and how these will be initially be set and subsequently increased.
“Where the arrangements are unclear, look to be unfair or are otherwise onerous, lenders may impose restrictions or decline to lend on such properties, as the existence of fees which can be increased without challenge or control could ultimately render a property both unsaleable and unmortgageable.”
Estate management fees are costs paid by homeowners on a private housing estate to maintain, renew and repair the shared amenities and spaces that their local council has not adopted.
Some developers, however, are applying uncapped, escalating fees to freehold contracts, which are often sold on to a management company once the estate is finished.
Last month, Mortgage Solutions reported how Santander was refusing to lend on new-build homes if the developer had included uncapped management charges in the freehold contract.
Santander said it could not carry out an affordability assessment if the developer had included uncapped fees in the sales contract as it could not establish whether the borrower could afford the house over the long-term. In such cases it could not offer a mortgage.
Nationwide has declined a small number of similar cases because it was uncomfortable with the estate fees included in the sale contract. The mutual said it would insist the solicitor draws up documents to protect the borrower and the lender.
Davies said lenders would always take a reasonable and practical approach to underwriting mortgage applications and there will be times where charging estate fees was justified. For example, if a local authority has refused to take responsibility for roads then developers have to put in place arrangements for their upkeep and collect the money to pay for that.
Lenders can ask conveyancers to check whether there are onerous clauses in contracts but this should not replace the requirement for the developer to be upfront, said Davies.
She added: “While obtaining clarification via conveyancers may provide reassurance, the emphasis really needs to be on developers providing really transparent information before buyers commit themselves to buying new property and thus avoiding disappointment and disputes later on.”