Bad News for Leasehold Properties?
Nationwide Building Society recently issued a press release, adding it’s voice to the ongoing national debate on unfair charges and practices affecting leasehold properties. Nationwide is taking steps to protect its mortgage members from unfair leasehold terms and escalating ground rents. They will be implementing this major new policy for new build leasehold property from 11th May 2017.
Recipients of our monthly e-newsletter will recall we e-mailed them in the first quarter of this year about this (an excerpt of that e-mail appears at the end of this blog post). Subscribe to our e-newsletter here.
Nationwide Building Society is the first mainstream residential mortgage lender to introduce such measures in respect of new build leasehold properties. We expect other lenders will follow suit soon. The aim is to assist prospectice homeowners from being tied into unfair contract/lease terms. Such unfair lease terms were the reason national housebuilder Taylor Wimpey recently set aside a slush fund of £130 Million to compensate the customers they had persuaded to enter into such contracts.
Under their new mortgage application policy for new build leasehold properties, Nationwide Building Society will only accept a minimum lease term of 125 years for a newly built flat or 250 years for a newly built house. Their new policy also states the maximum acceptable starting ground rent on all new build leasehold properties will be limited to 0.1% of the property’s value at the time the lease is granted.
Nationwide requires ground rent and other event fees to be reasonable at all times during the lease term. They consider unreasonable multipliers such as doubling every 5, 10 or 15 years as unacceptable. Their preference is for such escalation to be linked instead to a verified index, such as the Retail Price Index.
Fortunately, Nationwide has confirmed the policy change will not affect second hand leasehold properties being acquired with a Nationwide mortgage.
In the press release, Nationwide Building Society stated “As a mutual building society that looks to protect its members, we have decided to make changes to the way we lend on new build properties with a leasehold tenure. We are doing this to address the practice of using leasehold tenure where it is unnecessary, particularly for new build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled in order to safeguard our members. Nationwide is taking a proactive, leading position on this issue to address a significant risk facing our members and to challenge what we believe to be poor practice in the new build market.”
Excerpt from our E-Newsletter:
“There has been a considerable amount of media and consumer interest recently around issues such as escalating ground rents, leasehold new-build, management fees and service charges.
In response to this, The Conveyancing Association (the leading trade body for the conveyancing industry) has published the ‘Leaseholder Guide to Lease Administration Fees’ for those consumers who already own, are looking to purchase, or are selling a leasehold property. It is designed to outline some of the responsibilities that come with such properties and the types of charges that might be part of the lease and may be payable to the Lease Administrator. The Guide aims to outline the charges and help consumers understand what they will have to pay.
The Guide covers the three types of charges often associated with leasehold property, namely:
- Ground rent;
- Service charges; and
- Administration charges.
It provides information any prospective purchaser should have with regards to their cost now (and in the future), and the importance of securing this information upfront before any exchange of contracts. Of course we already include this information in the Conveyancing Guide and Report on Title we send our clients
In terms of ‘Administration charges’, the Guide looks at those most often charged by Lease Administrators when a leaseholder sells, when a consumer buys a leasehold property, and during the course of ownership. These can range from:
- When you sell – leasehold property enquiries and exit/transfer fees.
- When you buy – Deed of Covenant, Notice of Assignment and Charge, Certificate of Compliance, and Stock Transfer.
- During ownership – consents, Notice of Charge, Deed of Variation.
The Guide outlines exactly what these charges are and why the leaseholder might need this information from the Lease Administrator.
Finally, the new Guide also looks at the very important issue of the reasonableness of the fees charged by Lease Administrators, what these fees should typically be, and the process currently available to leaseholders if they wish to dispute unreasonable fees.”
About the Author
Tariq Mubarak is one of the top property solicitors in England, and he has helped hundreds of clients achieve success with their property goals.
Read more about Tariq’s background and his client’s successes.
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