How does my lender affect my leasehold purchase?

Article by Katie Easter -  Trainee Solicitor with MJP Conveyancing 

Conveyancers acting for mortgage advisers are under the same obligations to the lender as they are to their purchasing clients. 

These obligations include adhering in the main to the CML Handbook, a set of rules written by the Council of Mortgage Lenders which must be followed when acting for mortgage providers.

How does the CML Handbook affect Leasehold property?

The nature of leasehold property means that there are more factors that can lead to it diminishing in value compared to freehold property.  Mortgage providers therefore seek to protect themselves should they need to repossess a leasehold property by imposing strict requirements. Solicitors are obliged to ensure that leasehold property meets these requirements.

One of the biggest factors affecting the value of leasehold property is the term of years remaining on the lease following completion. Each mortgage provider that subscribes to the CML has their own minimum term of years requirements. If the term of years remaining is predicted by the valuer incorrectly, it is important for solicitors to notify their mortgage provider clients accordingly. This is one of the reasons that we must have sight of the Mortgage Valuation Report prior to exchange.

There are also requirements for particular terms to be included in leases. These include the need for other leasehold properties in the block to provide support and shelter to the flats around them. When we review leases we are ensuring that they contain rights to support and shelter from the neighbouring properties. Without these rights, purchasers of leasehold property could face expensive repairs should neighbouring properties fail to support and shelter their own. This could affect a borrower’s ability to pay their mortgage and is therefore a concern of mortgage providers.

Ground rent should also be checked to ensure that there will not be any sharp increases which could affect a borrower financially. We will check the lease and may raise further enquiries with the Vendor’s solicitors regarding this point.

It is also important to gather information about any management companies. The following items must be obtained and checked by solicitors:

1.       The lease or another agreement with the management company must give the company a right to enter the property to carry out repairs or other works.

2.       The last three years accounts of the management company should be obtained.

3.       Any details of major works that will be paid for with service charge should be obtained. It will be necessary to notify a mortgage provider if these cannot be satisfactorily obtained.

The obligations that MJP Conveyancing owe to their clients’ mortgage providers therefore govern some of the leasehold enquiries that we raise with Vendor’s solicitors. Regrettably, this can lead to some delays when purchasing leasehold property but it is important to retrieve these answers for both our clients and their mortgage providers. 

This is also why we always ensure that leasehold packs are ordered from management companies as early as possible when we are acting for clients that are selling their leasehold properties.