5th May 2017
Nationwide Building Society is taking steps to protect its mortgage members from onerous leasehold terms and escalating ground rents with a new valuation policy for new build leasehold properties.
The Society is the first major lender to impose fairer and more transparent lending conditions on these homes. For valuation purposes on all new mortgage applications on new build properties received from 11 May 2017, the minimum acceptable lease term on new build transactions (including office conversions) will be 125 years for flats and 250 years for houses.
In addition, the maximum acceptable starting ground rent on all new build leasehold properties will be limited to 0.1 per cent of the property’s value.
The ground rent must be reasonable at all times during the lease term, with unreasonable multipliers such as doubling every five, ten or fifteen years not allowed. Escalation should instead be linked to a verified index, such as the Retail Price Index. If the valuer believes the marketability of the property will be severely affected by unreasonable lease terms, they may decline the property, or reflect those terms in the valuation figure they provide to the lender.
Unfair leasehold terms and rapidly increasing ground rents have been the subject of much recent media, political and industry criticism, amid a drive to limit the practice of developers not only unnecessarily offering new build leasehold properties for sale but also in some cases the accompanying sale of those freeholds to third parties.
Robert Stevens, Head of Property Risk, Data and Strategy at Nationwide, said: “As a mutual building society that looks to protect its members, we have decided to make changes to the way we value new build properties on a leasehold basis. 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 in order to safeguard our mortgage members.
“Nationwide is taking a proactive, leading position on this issue to address a significant risk facing our members and to challenge what we believe to be poor practice in the new build market.”
The changes are limited to new applications on new build transactions from 11 May 2017 and will not apply to properties being sold second hand. It will apply to both Nationwide and The Mortgage Works (TMW) mortgage applications.