Why Won't They Lend on a Freehold Flat?

powerwin

I just saw in ING Direct's terms and conditions that they won't lend on freehold flats. Can anyone explain the reasoning behind this?

Thanks

moesasji

My guess would be that they consider this segment of the market too risky. In other words the value of flats could drop much more than the average deposit.

shark99

I don't think you'll find many insurers or mortgage lenders who'll touch genuine freehold flats (as opposed to leasehold or share-of-freehold). But freehold flats are quite rare anyway - mainly because the concept is pretty flawed ...

The problem with a freehold flat is that there is very little you can do to force the owners of the freehold flats above or below you (or of the communal areas) to maintain their properties (or to insure them for that matter).

This isn't a problem with a leasehold flat since there's a clear legal agreement with mutual obligations between the landlord and the lessee.

To take an extreme example, suppose ING give you a mortage loan on an upstairs freehold flat. Everything is hunky dory, but then the freehold owner of the downstairs flat moves abroad, the windows of his flat are smashed, rain gets in, and the downstairs flat becomes more and more dilapidated, until eventually it's actually structurally unsound. You try to contact the owner but he's retired to the Costa del Sol and can't be bothered to repair it. You cut your losses, move out and stop paying the mortgage, and ING reposess the flat. Shortly afterwards, the downstairs walls give way, bringing down what used to be your flat too. ING still have the title deeds, but what exactly do they own? A cube of air 10 foot up in the air where your flat used to be?

Shared freehold gets around this problem by having the freehold owned by a company made up of the individual flat owners, allowing them to (in theory) ensure that essential repairs are done.

powerwin

Thanks for the replies. That makes sense now.

Rgds