Lender announces crackdown on mortgages for leaseholds

A major lender is cracking down on loans for new-build leaseholds.

From next week, Nationwide will impose stricter criteria.

Leases will have to be at least 125 years for flats and 250 years for houses.

Ground rents must equate to no more than 0.1% of the property value and must be “reasonable at all times during the lease term”.

It will not allow “unreasonable multipliers” where, for example, ground rents double every ten or 15 years.

The building society is acting after negative publicity about developers who build new homes as leasehold properties, and then lucratively sell the freeholds to third parties who in turn see them as investments to cash in on.

Robert Stevens, head of property risk, data and strategy at Nationwide, said: “We are doing this to address the practice of using leasehold tenure where this is unnecessary, particularly for new-build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled.”

The changes in criteria will not apply to second-hand properties.

Bethany Rudolf of the Conveyancing Association said: “We applaud Nationwide for delivering these leasehold policy changes and hope other lenders will follow suit.

“This is particularly helpful while the Government is in a purdah situation and therefore unable to deal with the growing issues surrounding leasehold until post-General Election.”

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3 Comments

  1. AndrewOverman

    A great stance, let’s hope other follow suit.

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  2. Rob Hailstone

    A good first step indeed Andrew. Pity all lenders don’t work together though, individual changes will make the conveyancers job more laborious. The Bold Legal Group and the CA hope MPs will be including leasehold reform within their election promises.

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  3. RobertP76

    Nationwide and other commentators do not seem to have thought this through. Lawyers should have been warning their clients and valuers should have been reflecting in valuations anyway but this action by lenders will change values and potentially good market practice more dramatically than market factors even assuming a prudent and knowledgeable purchaser. Interestingly seems to only apply to new builds so landlord creating new leases from older building, if not newly created flats, can still have onerous long lease terms. There are many existing  leases at more than 0.1 per cent in value ground rents although still a small minority. That is only £300p.a. on £300,000. Saving matter for more recent doubling cost leases is leaseholders can and should extend their leases asap so ground rent becomes a peppercorn unless the Freeholder is willing to execute a variation to the lease changing the escalation of the ground rent. Of course, this action is a deterrent to developers and has the capacity to reduce supply of more affordable homes – what is wrong with shared ownership – just because it is not advertised as shared ownership does not mean it is not a good way of enabling first time buyers to afford – this seems like the lender has not been getting good advice from their valuers and/or lawyers and are not appreciating the benefits of getting increased investment in new homes by ground rent investors – throwing out the baby with the bathwater. don’t ban leaseholds from maximum mortgages with accelerating ground rents just appreciate the asset for what it is – a chance for buyers to buy the rest of the stake in the asset when funds are available. Lenders should employ valuers who know how to value and purchasers should get lawyers who now how to advise.

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