by Sam Pinder
Most lenders in the UK mortgage market are members of the CML. The CML produces a handbook, which contains comprehensive instructions for solicitors and licensed conveyancers acting on behalf of lenders in residential conveyancing transactions.
There has been considerable media focus on onerous leasehold terms for new build leasehold properties. As a result CML has developed a document which provides information on the issues relevant for lenders and their advisers concerning lease terms for such properties, which may have a particular implication for the value of the property and for the feasibility of the mortgage loan in a given transaction.
As part of the wider concerns, the Housing White Paper published on 7 February 2017 makes it clear that the government proposes to consult on a range of measures to tackle unfair and unreasonable abuses of leasehold. In particular, it identifies the costs associated with leasehold properties that buyers may not be aware of at the point of purchase, and ground rents with short review periods that may increase significantly during the term of the lease.
In May 2017, the Nationwide Building Society introduced new lending criteria for new build properties. For example, Nationwide will not accept an unexpired lease term on a new build flat of less than 125 years, or less than 250 years on a new build house. In addition, starting ground rent cannot be more than 0.1% of the property value and unreasonable multiples of ground rent (such as doubling every 5, 10 or 15 years) are not permitted.
The CML Document
The CML make the following general observations:
The document then goes on to state specific considerations relevant to lenders, such as the need to consider the mortgage term in relation to the lease term, with particular regard to a likely review of the lease once 80 years or less are remaining. Full details can be found in the official document here.