Unexpired Lease Timebomb: new worries over sale fall-throughs

A conveyancing body is calling on mortgage lenders to standardise their policies in respect of unexpired lease terms in order to cut fall-throughs.

The Society of Licensed Conveyancers has accused some lenders of changing policies to require the period of unexpired leases to be 80 or even 90 years. 

The SLC says this has caused significant issues for leaseholders who only find out when selling that they have to extend the lease to make the property saleable. 

This can cause transactions to fail or at the minimum can considerably delay the buying and selling process. 

SLC spokesman John Clay says: “It used to be the case that lenders would require an unexpired lease term of 50 or 55 years for leasehold properties to qualify for a mortgage, which normally represented the term of the mortgage plus 25 years. This meant that leasehold owners knew where they stood and also that property valuations were stable for leasehold properties. 

“It is now the case that many properties coming to market have unexpired lease terms between 55 and 80 years which will affect their value and potential saleability. 

“There appears to be no coherent reason for the change in lenders’ policies and indeed many lenders still apply the traditional model of the term of the mortgage plus 25 years. However, the changes by some lenders have resulted in the down valuation of many properties by RICS valuers and in some cases, it is causing blight.” 

The society admits it has no exact figures on the number of properties which may have unexpired leases of less than 80 years but it believes this could be over one million. 

It says many of these leaseholders will have no idea that there may be an issue in selling their properties until they put them on the market, and in many cases not until well into the conveyancing process. 

“Ironically, the change in policy by some lenders means that properties on which other mortgage lenders have lent, and look to for security, may have impaired value. In some cases, existing lenders will have properties mortgaged to them which would not now be considered good security by their own standards” adds Clay.

The society has asked UK Finance to engage with its members on possible standardisation of policies. In addition, the society says lenders who have changed their criteria should have a duty to notify existing borrowers that their title may not now be acceptable as security for a mortgage.