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High-rise lending still hindered by fresh certificate obstacle, conveyancers warn

  • 27/03/2023
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High-rise lending still hindered by fresh certificate obstacle, conveyancers warn
People living in or looking to buy flats in high-rise buildings could still find themselves with no mortgage options despite lenders pledging to unlock this part of the market, conveyancers have warned.

In January, UK Finance announced that Barclays Bank, HSBC, Lloyds Banking Group, Nationwide Building Society, Natwest, and Santander had agreed to consider mortgage applications against properties in high-rise buildings. 

This would require evidence that buildings will be brought up to fire safety standards by developers, are covered by a recognised government scheme or by the applicant showing a property is protected to Building Safety Act standards and proving it with a Leaseholder Deed of Certificate. 

The Building Safety Act states that for leaseholders to confirm that they are protected from paying remediation costs for historical non-cladding safety works, they need a certificate that shows they were the leaseholder of that property as of 14 February 2022. 

A spokesperson for UK Finance said: “The certificates are a way to demonstrate whether leaseholders are protected from paying costs. Lenders have their own policies on whether they require a leaseholder certificate to be checked and can update their instructions to solicitors on this via the Lenders Handbook.” 

However, conveyancers say only some banks are asking for this information and each lender is asking for different proof of where the cost liability lies. 


Conveyancers shoulder the burden

Simon Law, licensed conveyancer and chairperson of the Society of Licensed Conveyancers, said this was a “big issue” and down to lenders’ interpretation of the Building Safety Act and individual risk. 

He said putting the responsibility on conveyancers to collect and verify these documents is causing problems as they were “not qualified” to confirm a property’s ownership. 

He said: “We can’t just take their word for it. We also have to check that the developer is a qualifying landlord.” 

Law said the structure of some companies made this harder, a view backed up by Zahrah Aullybocus, consultant solicitor at Nexa. 

Aullybocus said some developers sold properties under a different name or special purchase vehicle (SPV). Once all properties are sold, the parent company moves money out of the SPV then liquidates it. 

“So, there’s no company, no one to hold accountable,” she added. She also said lenders were “passing the buck to us conveyancers”. 

Beth Rudolf, director of delivery at the Conveyancer’s Association, said this made it hard to advise clients because conveyancers and surveyors cannot say if buildings are structurally sound and compliant with the law. She said lenders were “stuck in the middle” because they wanted someone to say whether a property was okay to lend on or not. 

According to the UK Finance Mortgage Lender’s Handbook, some of the information requested by both Barclays and Nationwide includes making sure the property was the leaseholder’s only or principal dwelling as of 14 February 2022, the price and date the property was last sold on the open market and to verify the group net worth of the landlord.


Conveyancers can’t do lenders’ jobs

Law said it felt as though the responsibility for sourcing this information had fallen on conveyancers because of their professional indemnity insurance (PII). 

He said it seemed as though lenders were telling the government they would lend but asking conveyancers to do their underwriting. Law said it was hard to say a property was safe to lend on as this fell outside conveyancers’ remit. 

“It’s not a legal problem we’re looking at here, it’s a building management safety and valuation issue,” Law added. 

Aullybocus said conveyancers were also worried about the validity of the information although lenders are asking them to make sure it is “true and correct”. She said misinformation and errors could lead to leasehold and landlord certificates being incorrectly filled in. 


Trouble getting documents

Aullybocus said some landlords did not want to provide a certificate because works had already been completed, and some leaseholders did not want the document for fear that they would discover they were liable for costs. 

She advised a client to get the document anyway, adding: “I am advising clients to produce Leaseholder Deeds of Certificates if they were owner occupiers as at 14 February 2022 to establish the leaseholder protection provisions under the act.” 

Law said it was a complex issue that not many would be aware of and landlords were not issuing certificates quickly. 

“These are found out through the course of the transaction. You could be adding weeks to an already elongated process at a time when the market is a bit fragile. Things could be extended another four weeks on top of transaction times,” he added. 

Even where lenders do not have this policy, Law said clients should still get the certificate in case things change. 

Law said: “We’re at the mercy of the lenders and their criteria. The act has missed the point a little bit. It was designed to make these properties sellable.” 

Aullybocus added: “Even with the service charges – the way shared ownership works is difficult to unpick and it’s [hard to know] what the charges are because they’re just grouped together.” 


No movement for leaseholders

Law said this put sellers back in “the same position they were in before”. 

He cautioned that if the information on the certificates happened to be wrong, properties would be unsellable. 

Law is telling clients to hold on to records in case of potential sale or remortgage.  

He is also trying to get a meeting with industry bodies to lobby for change, adding: “It feels like it’s going to need more government intervention.” 

Rudolf said this highlighted the need for a property logbook, so the Leaseholder Deed of Certificate could be accessed by future owners, their conveyancer and the estate agent. 

She said a single source of information detailing which buildings were connected to particular landlords would also help, as often, conveyancers were having to source several certificates for the same building due to a lack of information. 

However, she suggested that including a Unique Property Reference Number (UPRN) to building safety assessments could help identify the  landlords attached to several properties. 

Rudolf added: “From there, the conveyancer will need to also see if the Leaseholder Deed of Certificate has been provided for the building but if the lease administrator has changed, without it being registered anywhere, it is possible that it will have been lost. This all creates extra work.”   

The inclusion of this information is also being considered by the Home Buyer and Sellers Group as part of its Property Logbooks which hope to capture the UPRNS for each property. 


Conveyancers turning away leasehold

Conveyancers said firms were starting to refuse leasehold cases altogether. 

Aullybocus said: “A lot of conveyancers are saying they’re basically going to turn down leasehold work. Some of us can’t afford to do that because we’re self-employed or run our own businesses.” 

She said this refusal could be unavoidable, however, as it would be inevitable that at least one property in a chain would be under a leasehold contract. 

Still, Aullybocus added: “My colleagues won’t touch leasehold because it’s complicated, they just want an easy life.” 

Rudolf said conveyancers considered it “too complex to advise on until the process has settled in with the lease administrators and landlords”.   

She said: “This could cause problems for buyers and sellers of leasehold properties. It could mean they have limited options and open them up to higher costs charged by the few firms who will do this kind of business that need to take extra PII to cover it.”    

Law said:“There is no guidance for conveyancers whatsoever. We’re having to read the act ourselves and compare it to the instructions we’re getting from lenders. And then we’re trying to make risk-based decisions on that, which is why a number of firms have said ‘we’re just not going to touch it’. 

“I’ve seen some firms saying that they’re going to charge an additional sum to take it on. They may be using that as a deterrent or seeing it as a way to make money, not thinking in the future that they might end up with a lot of claims.” 

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