Yeat another Leasehold/Freehold question

hedgehopper_2

Hi all, thought I'd done this topic to death earlier, but there's more.

So, I was advised by a mortgage provider that they would be willing to lend on a flat (in this case a purpose built maisonette which I think may help?) that has a share of freehold. It has a leasehold in place too: our agent has told us that the vendor has recently extended this to 99 years. So I rang up twice to speak to two different people to check they were OK with share of freehold as we have been burnt on this one before, and I was very wary. Both said it was absolutely OK.

So imagine my joy when after completing part of my application, I was sent a criteria list, which stated the lender would NOT lend in the case of 'freehold flats'.

I called back to mention this and unfortunately got someone who didn't sound too clued up on the subject. However, she also said that it seemed our case would be ok, as there is a lease in place in addition to the share of freehold. However, I was not personally aware that it wasn't possible to have a share of freehold without a leasehold, so I am not sure how this one having a leasehold helps.

I also asked exactly what was meant by 'freehold flat' and why this did not apply to our purchase, and she seemed to have trouble answering, saying that she thought it meant a 'flying freehold' or something fairly specific that wouldn't cover all flats/maisonettes with a share of freehold in place.

I'm not entirely comforted by this, as I do not want to submit any more doomed applications and damage our credit rating/waste more time on the basis of wrong information.

Can anyone help? Or do I need to call them and speak to yet another adviser?

Richard_Webster

The important thing is that there is a lease of your flat. It doesn't greatly matter from the lender's point of view whether the freehold is owned by some outside property company or by a combination of flat owners or by a company owned by the flat owners.

The key thing is that there is freeholder who would normally be responsible for such matters as maintenance of the structure of the building and insurance (and even if he isn't, he is able to make sure that other lessees comply with their lease obligations e.g. to maintain their part of the building.) Doesn't matter that the freeholder is actually a combination of the leaseholders or a company owned by them.

If you have a "pure" freehold flat where each separate flat has its own freehold title and the freehold of the building as a whole is not in the ownership of one person, company, or group of people, then you have a problem. Freehold law in England/Wales does not oblige a person to carry out positive acts (to maintain a building or pay money) just because his property adjoins or is above or below another freehold property. There has to be a direct legal agreement between the people involved - and usually there isn't. That's why flats are nearly always leasehold and why few mortgage lenders will lend on pure freehold flats - except bizarrely in Scarborough where some local lenders will lend!

"Shared Freehold" has no legal status as such and is really an estate agent's term to describe the situation where you don't have the hassle of dealing with an outside landlord.

It is pretty standard that lender's branch offices and brokers fail to understand "shared freehold" and the simplest way forward is simply to say you are buying a flat and they will assume it is leasehold and your solicitor will sort out the details later.

You should also note the entirely separate issue that where you have the freehold literally owned by up to 4 flat owners (e.g. your seller is S and there are also ABC) and you as buyer are U then SABC have to transfer the freehold to ABCU. If any of AB or C aren't around they can't sign or are having an argument with S they may refuse to sign or and then you don't get the share in the freehold you were hoping for!

It is important therefore, particularly with small converted buildings to talk to the other "shared freeholders" to make sure they are happy to join in such a transfer and to ask generally how things run between the various flat owners as far as maintenance is concerned. Mostly it will be fine and they will use their common sense but there can be some almighty arguments and problems that are not easily solved and the sooner you find out about them the better.

hedgehopper_2

Thanks loads, that's great and I think is the answer I was hoping for!

What's now bugging me is that when we approached a well respected mortgage broker for advice on this purchase, they told us at some length how few lenders would consider our application, and eventually only came back with one we were unhappy with.

Surely they didn't just assume that this was a 'pure' freehold' flat (which I now understand is rare) and work on that basis? Admittedly I was not as knowledgeable on the subject then as I was now so I don't think I emphasised that there was also a lease in place, but I assumed they would act on the basis that there was. Given the amount he stressed that we'd have a problem, I now suspect he may not have done. We eventually made a direct application, but oh dear! This could have cost us a week...

Doozergirl

Some people at mortgage companies get paid to answer phones and basic queries. It's other people that understand the actual practice of Mortgage Lending and the intracicies of SoF vs. true freehold.

Frankly, if they get paid enough to know exactly what they are talking about, they won't be deailing with the general public all day.

You would have been better addressing this question to your solicitor who would have explained, like Richard Webster, what you were deailing with - ie. not a 'freehold flat' and nothing to worry about.

Richard_Webster

If the freehold is owned by a company (regardless of who owns the company) it is no different from any other leasehold property and telling brokers about "shared freehold" is a waste of time. It is a leasehold flat. It is a leasehold flat. It is a leasehold flat. Forget all about "shared freehold" when you apply for a mortgage, OK?

If there are up to 4 flats and the freehold is literally registered in the names of the 4 flat owners then the Council of Mortgage Lenders (CML) Handbook 5.5.4.1 applies:

"5.5.4 Where the security will comprise:
5.5.4.1 one of a block of not more than four leasehold flats and the borrower will also own the freehold jointly with one or more of the other flat owners in the building... check part 2 to see if we will accept it as security and if so, what our requirements will be."

Part 2 contains the specific requirements of the lender in question and nearly all the major ones will accept this. So you simply tell your broker to quote 5.5.4.1 at the lender. You can go on the CML website and download the details for your particular lender at: http://www.cml.org.uk/cml/handbook/england

Watch HSBC/First Direct. They don't subscribe to the CML handbook so their attitude is completely unpredictable where there is literal shared freehold.

It really pains me that brokers haven't bothered to look at the CML handbook before they tell people how difficult it is to get a mortgage on a "shared freehold."

hedgehopper_2

Oh dear, that is most upsetting to hear. We've wasted a lot of time and potentially not got the best deal out there as we've had to now go it alone. Let's hope we don't lose the sale over this, eh?