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.