Monday, 29 August 2016

Flying Freehold Enquiries Take Off Post Brexit

CML post Brexit figures already indicate a slowdown in housing market. Perhaps it’s not surprising that so called ‘problematic properties’ i.e. those with more unusual characteristics are more difficult to sell.

Specialist website has reported a ten-fold increase in enquires concerning flying freehold this August. This includes calls from a number of sellers who expressed surprise that their lawyer had not given them any context enabling them to understand the extent to which lenders as a whole react to such properties. Potential for claims? Time will tell.

In January this year Lexsure reported that during 2015 changes to the CML Handbook focused on problematic properties such as flying freeholds, properties with absentee freeholders as well as properties with short leases.

Examples of recent queries to  in the last few days include :

I am buying two adjoining cottages which have a shared archway that runs under the rooms above. So there is a flying freehold, which is fine for me as I will own both, but how do I protect myself during the purchase so that in the future I can sell the individually without problems?

‘I inherited a property from my father which has a flying freehold but I don't have very much documentation. I have been told that it is "unmortgageable" because of this but I want to investigate further. What documentation would I expect to have for a flying freehold? The property is in South Wales.

I was just wondering if details of a flying freehold have to be added in sales details when selling the property

I am interested in a property which has a garage below which has been sold. this has created a flying freehold, would it be possible to get a mortgage?

Thursday, 18 August 2016

New Life Mortgages - A New Approach to Unexpired Lease Term

New Life Mortgages is the latest of a number of lenders who have changed their CML Handbook requirement relating to unexpired lease terms (section 5.14.1).

The new requirement reads :

"Leasehold remaining term plus the age of the youngest borrower at completion must be at least 185 years".

A novel approach. Interested to see if others follow the same logic.

Tuesday, 2 August 2016

Are Property Lawyers Sleepwalking Into Leasehold Nightmare?

Property lawyers in England and Wales are sitting on a potential time-bomb as one and a half million leaseholders face an increased risk of their property plummeting in value, or even becoming unmortgageable.

What has changed?

A number of lenders have recently increased their minimum unexpired lease term requirements to 85 years. The consequences of failing to warn clients about lenders’ trends and the dangers of having a lease of less than 85 years are potentially very serious. Many leasehold owners with less than 85 years remaining may find it nigh on impossible to sell on. Changes in lender attitude to leasehold properties and in particular amendments to section 5.14.1 of the Council of Mortgage Lenders (CML) handbook may well trigger a wave of negligence claims between in the next few years.

In the last six months of 2015, 17 lenders - more than 12% of all mainstream lenders - amended their minimum lease term requirements upwards. Ten lenders made a change from 70 to 85 years. The landscape has changed dramatically in just a few years. Back in 2010, half of the lenders who now demand 75 years, accepted leases with just 55 years remaining. Lexsure projections, based on detailed trend analysis, predict that by 2025 the majority of lenders will not lend on a property with a lease of less than 85 years remaining.

Typical leasehold conveyancing transaction example:

Summer 2016: Your client completes on a flat with 87 years left on the lease. You express no concerns regarding the unexpired lease term. The Report on Title is silent about extending the lease term as even the marriage value is not a consideration at this point.

Summer 2019: Your client now looks to sell his property. Because many (or by then perhaps most) lenders will not lend on a lease term of less than 85 years, the buyer finds he cannot find a mortgage and threatens to withdraw from the purchase. Your client is under pressure to extend the lease before exchange. The cost is reasonable because there are more than 80 years remaining, but the legal costs and premium will come to about £4,000. Where does he find the money from? Time is short and the negotiation is protracted, as the freeholder realises that your client is prepared to pay more for an early resolution. Your client is shocked that this was an issue and questions why you did not raise it when he purchased the property.

Putting things in perspective 

In order for a claim to be successful against the conveyancing lawyer the loss has to be ‘reasonably foreseeable’. Is it reasonable to expect a lawyer to pick up on the trend of lenders increasing their minimum unexpired lease term? Can a lawyer really be expected to appreciate the marketability of property? Time will clearly tell as to whether we will see a flood of claims ….but what is the downside to adjusting your Report on Title to address this potential issue?

One thing I do know for certain is that in the last few months Lexsure has received a significant increase in the number of enquiries received from members of the public and litigation firms asking for details of specific lenders requirements such as minimum lease term a few years earlier but also an overview as to the lending industry's approach generally on a given date.

Wednesday, 1 June 2016

CML Handbook Amendment - Part 3 Handbook Standard Requirements Letter

The CML have made an amendment the example standard requirements letter, which was developed when they introduced Part 3 of the CML Lenders’ Handbook.  

The amendment deletes the final sentence of the sixth bullet under the ‘Pre-exchange’ section: ‘If you intend to use personal searches, please contact us to discuss this so we can ensure we are able to rely on the searches’, at the request of the Council of Property Search Organisations, as it was superfluous, given the reference to Part 1 of the Handbook.

Links to the example standard requirements letter appear at Clause 1.4 of Part 3 of the Handbook; and on the landing page of the Lenders’ Handbook on the CML website.  They have both been updated.

Tuesday, 24 May 2016

Significant number of conveyancing cases to be impacted by LBG CML Handbook change

With “Bank of Mum and Dad” currently helping finance 25% of UK mortgages the latest change to the CML Lenders’ Handbook for four banks within LBG is particularly significant.

Earlier this month the Guardian (excuse the pun) revealed that parents are set to lend their children £5bn to help them on to the property ladder. If the lending power of these parents was combined, it would be a top 10 mortgage provider. It is worth noting that the article reflects that parents are ‘lending’ rather than gifting. In many cases the loan is protected by way of a deed of trust.

In the last few hours the likes of Lloyds and BOS have made their position a lot clearer via the CML Handbook by changing their answer to Question 5.13.1: “If different from 1.11, contact point if borrower is not providing balance of purchase price from funds/proposing to give second charge”.

For many lenders the answer to the question simply sets out the contact details for the relevant department at the said lender.

Just look at what BOS now have to say:

‘You should report any circumstances where the balance of the purchase price is not being provided in accordance with Part 1 and in doing so must wait for our written instructions prior to proceeding. Please write to our Customer Services Centre (see offer for address and fax number).

Gifted deposits are only acceptable where all the following apply;

The gift is from an immediate family member(s), who confirms it is not repayable. Gifts from unrelated third parties, including friends and employers are not acceptable.

The family member(s) must be related to one of the borrower(s) by any of the following (see also the definition in Part 1, paragraph 1.13);

• birth/blood relative

• spouse or civil partner, child, step children, adopted children and in-laws

• A co-habitee

A Deed of Trust or Second Charge to protect the gifted deposit is not acceptable.

Note we do not accept family gifted deposits in Buy to Let transactions where the Vendor is a family member.

When reporting a gifted deposit ensure your letter confirms the gift complies with our requirements.

Where a gifted deposit is acceptable you must obtain and retain on your file a letter, addressed to you, signed by each individual family member(s) gifting the deposit which confirms the following information;

• The name address of the family member gifting the deposit

• Their relationship to the borrower(s)

• The name and current address of the borrower(s)

• The address of the property being purchased

• The amount being gifted and the source of the funds

• That the gift is not repayable and the family member(s) providing the gift will not acquire an interest in the property

• The letter must be dated with 3 months of completion

You must ensure clear bankruptcy searches are carried out against the borrower and all parties contributing to the balance of the purchase price. You must notify us if you cannot obtain clear searches’.

This importance of this change is significant especially given the percentage of cases that this applies to. If lenders in the LBG are shedding light on this area should your firm be taking head on all purchase cases where there is a lender as well as a 3rd party ‘helping out’?

Four of LBG lenders have made changes whilst  at the same time also making  important amendments to other sections of the CML Handbook. For full details of the changes and to receive notifications as to future changes your firm should subscribe to

Tuesday, 9 February 2016

Most Changed CML Handbook Part 2 Sections (England & Wales) 2015

# changes
Section number
Does the lender send the discharge via a DS 1 form or direct with the Land Registry?
What new home warranty schemes are acceptable to the lender?
Does the lender require you to disclose the details of any existing Green Deal Plan(s) on a property?
Does the lender need to be sent the original mortgage deed?
If different from 1.11, contact point for title documents:
What form of attestation clause does the lender use?
Does the lender accept personal searches and, if yes, what are the lender's requirements?
Does the lender have additional requirements relating to leases of roof space for solar PV panels, and if so, what are they?
If different from 1.11, the contact point if the seller has owned the property for less than 6 months:
If different from 1.11, contact point for confirming proposed deed or agreement will not adversely affect the lender:
Contact point for standard documents.
Which documents must I send after completion?
If different from 1.11, contact point for finding out the debt amount:
Does the lender require me to report to them where the lease does not meet the CML minimum requirements for leases of roof space for solar PV panels?

Thursday, 28 January 2016

COT Assurances to Lenders to be Extended

An important amendment is be made to to clause 10 of the CML Lenders’ Handbook on 1 February 2016.
The amendment will insert an additional sentence into clause 10.2 as follows: (additional wording in bold)
10.2 We shall treat the submission by you of the certificate of title as confirmation that the borrower has chosen to proceed with our mortgage offer and as a request for us to release the mortgage advance to you. Check part 2 to see if the mortgage advance will be paid electronically or by cheque and the minimum number of days notice we require. 
The amendment is designed to reflect the introduction of a requirement, as the result of the Mortgage Credit Directive, for mortgage customers to have a ‘reflection period’, of at least seven days before accepting a mortgage offer. Recital 23 and Article 14(6) of the Directive set this out. The customer can bring that reflection period to an end earlier, by accepting the mortgage offer.
The wording intends to clarify that, in cases where the mortgage lender does not already require a formal acceptance from the borrower, that the current practice of the conduct of borrower in drawing down the loan, acts as acceptance of the mortgage offer, and creates the contract; this in turn, in cases where the draw-down happens before the end of the reflection period, confirms that the customer has brought the reflection period to an end by their conduct, which Recital 23 expressly allows for.
Lenders will explain the concept of the reflection period in information provided to prospective borrowers, for example, in the mortgage illustration, mortgage offer and mortgage terms and conditions. Many lenders are either allowing a 10 day reflection period (to account for postage time) or aligning the reflection period with the existing offer expiry date (which can be up to 6 months). The CML consulted with the legal sector and the financial services regulator (FCA) on this amendment. 
I wonder how many firms have adjusted their Terms and Conditions to cater for this?