Lease Extension Problem with HSBC Mortgage

richdeniro · 13 October 2016 at 1:06PM

I had an offer accepted for 200k on a one bedroom flat where the lease was down to 77 years however the current owner was going to extend the lease to 99 years upon completion.

I used L&C as my mortgage broker and they got me a HSBC mortgage for 160k with myself providing a 40k deposit.

Everything seemed to be going smoothly until last week when my broker phoned and said that due to the valuation changing because of the expiring lease HSBC will now only lend 145k and apparently they will not change the valuation back until the lease is extended so it must be done before completion.

I thought it was fairly common that a lease extension be done on completion and the lender would accept that especially as all the paperwork is in order.

Am I going to have to go through the whole mortgage application process again with a different lender now?

I don't think the vendor has the finances in place to extend the lease before completion and I am now worried that if it is delayed further due to having to apply for another mortgage he will just pull out altogether.

always_sunny · 13 October 2016 at 1:13PM

richdeniro wrote: »

I had an offer accepted for 200k on a one bedroom flat where the lease was down to 77 years however the current owner was going to extend the lease to 99 years upon completion.

I used L&C as my mortgage broker and they got me a HSBC mortgage for 160k with myself providing a 40k deposit.

Everything seemed to be going smoothly until last week when my broker phoned and said that due to the valuation changing because of the expiring lease HSBC will now only lend 145k and apparently they will not change the valuation back until the lease is extended so it must be done before completion.

I thought it was fairly common that a lease extension be done on completion and the lender would accept that especially as all the paperwork is in order.

Am I going to have to go through the whole mortgage application process again with a different lender now?

I don't think the vendor has the finances in place to extend the lease before completion and I am now worried that if it is delayed further due to having to apply for another mortgage he will just pull out altogether.

I haven't started my extension though from all reading I have done it never really just happens on completion. The current owner would need to serve a S42 for the statutory extension and that could take between 3 to 12 months or longer. Once served, they would then assign you the rights to continue but at completion time it will still be pending.

Informal extension might be quicker but usually not on better terms for you and the flat and still do take few months. Anything with a solicitor involved takes ages in England as I have discovered!

Bossypants · 13 October 2016 at 1:22PM

always_sunny wrote: »

Informal extension might be quicker but usually not on better terms for you and the flat and still do take few months. Anything with a solicitor involved takes ages in England as I have discovered!

This is what happened on my last purchase. The vendor and the freeholder were on good terms and the freeholder was available and responsive, but the whole thing still took 8 months to resolve. If I had been buying with a mortgage, it would have expired by the time we were ready to exchange.

eddddy · 13 October 2016 at 1:51PM

richdeniro wrote: »

I thought it was fairly common that a lease extension be done on completion and the lender would accept that especially as all the paperwork is in order.

Yes - I would agree.

Has there been a misunderstanding somewhere?

I'd be tempted to call HSBC direct, to ask if they have a problem with lease extensions on completion.

Of course it could be something slightly different, like they have a problem with the specific informal lease extension that your seller has negotiated - perhaps the ground rent.

Edit to add...

For the benefit of other posters on the thread, what has presumably happened here is:

- The freeholder agrees to extend the lease on a specific completion date
- The leaseholder agrees to sell the leasehold on the same completion date
- The OP buys the new extended leasehold on that same completion date

So
3 people simultaneously exchange contracts on the same day
3 people simultaneously complete on the same completion day

So the freeholder has presumably already agreed the terms of the lease extension.

But if the freeholder hasn't agreed - that would be the cause of the problem.

always_sunny · 13 October 2016 at 2:08PM

eddddy wrote: »

So the freeholder has presumably already agreed the terms of the lease extension.

In England, in the world if real estate buying nothing can be presumed till everything is exchanged and completed :eek:

eddddy · 13 October 2016 at 2:17PM

always_sunny wrote: »

In England, in the world if real estate buying nothing can be presumed till everything is exchanged and completed :eek:

What specific scenario are you suggesting might occur?

If you re-read my post, you'll see it says:

eddddy wrote: »

3 people simultaneously exchange contracts on the same day
3 people simultaneously complete on the same completion day

richdeniro · 13 October 2016 at 2:20PM

eddddy wrote: »

Yes - I would agree.

Has there been a misunderstanding somewhere?

I'd be tempted to call HSBC direct, to ask if they have a problem with lease extensions on completion.

Of course it could be something slightly different, like they have a problem with the specific informal lease extension that your seller has negotiated - perhaps the ground rent.

Edit to add...

For the benefit of other posters on the thread, what has presumably happened here is:

- The freeholder agrees to extend the lease on a specific completion date
- The leaseholder agrees to sell the leasehold on the same completion date
- The OP buys the new extended leasehold on that same completion date

So
3 people simultaneously exchange contracts on the same day
3 people simultaneously complete on the same completion day

So the freeholder has presumably already agreed the terms of the lease extension.

But if the freeholder hasn't agreed - that would be the cause of the problem.

Could it be that the solicitor or broker hasn't done their job properly and informed HSBC of the details do you think?

I just spoke to the Estate Agent who seems to think that the lease has now been extended and we are just awaiting paperwork in the post so am now even more confused.

eddddy · 13 October 2016 at 2:29PM

richdeniro wrote: »

Could it be that the solicitor or broker hasn't done their job properly and informed HSBC of the details do you think?

That would be my first guess - which is why I suggested calling HSBC directly.

richdeniro wrote: »

I just spoke to the Estate Agent who seems to think that the lease has now been extended and we are just awaiting paperwork in the post so am now even more confused.

If that's the case, the seller should have a copy of the extension deed to hand - ask the EA to get a copy for you (so you have some real evidence) - as opposed to the word of a potentially confused EA.

And check the new ground rent! It could be an issue.

always_sunny · 13 October 2016 at 3:46PM

eddddy wrote: »

What specific scenario are you suggesting might occur?

If you re-read my post, you'll see it says:

Can any of these 3 people pull out and no question asked?

eddddy · 13 October 2016 at 8:24PM

always_sunny wrote: »

Can any of these 3 people pull out and no question asked?

What is it that you don't you understand?

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Lease Extension Problem with HSBC Mortgage

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