Historical note: This article records a change to Tipton and Coseley Building Society’s mortgage instructions at the time of the original publication. It should not be treated as a statement of the Society’s current lending criteria. Conveyancers should check the current lender instructions before acting.
The trend for lenders to take a more cautious approach to complicated or potentially less marketable properties continued when Tipton Coseley Building Society added ten years to its mortgage instructions concerning minimum lease terms.
At the time, Tipton published its lender specific requirements through the Building Societies Association mortgage instructions. The recorded old wording and new wording for this particular amendment can be viewed in the LenderMonitor change record.
A ten year change can alter the mortgageability of a flat
Adding ten years to a minimum lease requirement may look like a modest adjustment to a lender’s instructions. For an owner trying to sell or remortgage, however, it can determine whether a transaction proceeds normally, requires a lease extension or loses its proposed mortgage funding.
The remaining lease term reduces every day. At the same time, lender criteria can move in the opposite direction. A flat accepted by a lender when it was purchased may therefore fall outside the requirements of a different lender, or even the revised requirements of the same lender, when it returns to the market.
This is one reason why the fact that a property was mortgaged previously does not prove that it will remain readily mortgageable. The lease has become shorter and the lending market may have changed around it.
This was part of a wider lending trend
The Tipton change did not arise in isolation. It followed other changes which building society panel solicitors needed to consider in relation to unusual or potentially restricted property types, including flying freeholds and freehold flats.
An earlier About Conveyancing article, Leasehold: 85 Is the New 70, recorded how lenders were already increasing their minimum unexpired lease requirements. That article was identified as an unindexed page and is directly relevant because it shows that lender attitudes towards short leases have been changing for many years.
The continuing lesson is that mortgageability is not fixed. Different lenders can apply different minimum terms, and individual lenders can amend their position over time.
Why lenders are cautious about shorter leases
A mortgage lender is not examining only whether a borrower can make the monthly repayments. It is also assessing the property offered as security and whether that security is likely to remain saleable during the mortgage term.
A declining lease term can affect value, the cost of obtaining an extension and the number of future buyers able to secure a mortgage. The issue may become more pronounced where the mortgage itself has a long term. A lender will want sufficient lease term remaining both at completion and at the end of the proposed mortgage.
When a lender increases its minimum requirement, the change reflects its view of the risk attached to the security. It does not mean that every shorter lease is unsaleable. It does mean that the pool of available lenders and therefore potential purchasers may become smaller.
Why checking one lender is not always enough
A conveyancer must comply with the instructions of the lender involved in the transaction. Advice to the buyer should nevertheless consider a wider question: will the property remain reasonably marketable when the client wants to sell?
A lease may satisfy the buyer’s present lender by a narrow margin. If other mainstream lenders apply longer minimum terms, the client could face a more restricted market after only a few years of ownership.
This does not require a conveyancer to predict every future policy change. It does require the current lease term, the proposed mortgage term and the practical implications of the declining term to be explained clearly. The client should understand that lender acceptance today is not a guarantee of easy resale tomorrow.
Two operational priorities for panel solicitors
1. Monitor current lender instructions
Lender instructions are not static. Assuming that a building society’s criteria remain the same as on the firm’s previous transaction can produce delay, an unnecessary referral or a late discovery that the security is unacceptable.
The relevant instructions should be checked for the particular lender and transaction. Firms should also have a reliable process for identifying amendments and communicating material changes to fee earners.
2. Identify the lease term early
Buyers often do not appreciate that a property acceptable to one lender may fall short of another lender’s minimum term. Establishing the unexpired term early allows the conveyancer to compare it with the mortgage term, the lender’s current requirements and the buyer’s likely period of ownership.
Where the margin is narrow, the buyer may need advice about a lease extension, valuation implications and the possible position on resale. Raising the issue before significant costs are incurred also gives the parties more time to consider whether an extension or other solution can be negotiated.
Has a short lease delayed your sale or remortgage?
If the remaining lease term has only become a problem when selling or remortgaging, the relevant questions may include what the lease showed, what mortgage lenders required and what advice you received when you bought.
The firm’s leasehold procedure should reflect lender change
The unindexed article on the CQS Purchase of a Leasehold Policy identifies lease length, mortgageability and marketability as matters that should be addressed within a firm’s procedure. A policy should do more than instruct a fee earner to record the number of years remaining. It should explain when further investigation, escalation or specialist lease extension advice may be required.
That procedure should also require advice to be given in a form the client can understand. The broader article Leasehold Regret: Why So Many Buyers Discover the Real Cost Too Late explains why reproducing the remaining term is not the same as explaining its possible effect on future value, mortgageability and resale.
Historical changes remain useful evidence
The Tipton change is historical, but that does not make it irrelevant. Contemporary lender changes show when particular mortgageability concerns were being expressed within the market. They can also help explain why advice about a lease term should not have been limited to whether the immediate lender was willing to proceed.
Care is still required. A historical change does not establish what Tipton requires today. Nor does it prove that a conveyancer was negligent on any particular transaction. The relevant lender wording, transaction date, mortgage offer, lease and conveyancing file must all be considered.
The practical lesson
A ten year increase in a lender’s minimum lease requirement can have an immediate effect on a property that was previously considered acceptable. For panel conveyancers, the response should be straightforward:
- check the current lender instructions on every relevant matter;
- calculate the unexpired term accurately;
- consider the term remaining at the end of the mortgage;
- address marketability as well as immediate lender acceptance;
- explain the practical consequences to the client before exchange; and
- record the advice and any decision to proceed.
As building societies adapt their requirements to changing market conditions, staying aligned with the applicable lender instructions remains essential. A short lease should be identified as a developing risk, not treated as a static number copied from the title.
This article provides general information only. The lender change discussed is historical. Current lender requirements and the circumstances of the individual transaction must be checked before advice is given.
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