New development estate charges and underwriting

Amy32

We are in the midst of applying for a mortgage for a new build. The valuation was carried out and has been valued as expected but they have asked for further info on estate charges (yearly maintenance payment). Has anyone had experience of this and has it impacted on your mortgage application/offer? 

Carl2510

Think the salesman gave info like that to our surveyor.

daveyjp

The developer will be able to advise. 

Remember the figure will be a best estimate, the developer may keep it low in year one as they are selling the property and year one maintenance should be minimal, it could increase significantly in subsequent years as maintenance increases.  

The amount impacts on the affordability of the purchase which is what the mortgage company will take into account. 

Amy32

daveyjp said:

The developer will be able to advise. 

Remember the figure will be a best estimate, the developer may keep it low in year one as they are selling the property and year one maintenance should be minimal, it could increase significantly in subsequent years as maintenance increases.  

The amount impacts on the affordability of the purchase which is what the mortgage company will take into account. 

Ok thanks. I have heard of some lenders declining mortgages based on this! Hopefully ours isn’t one of them. In terms of affordability I hope we are ok as we are asking for £100,000 less than what we could reasonably borrow. But you never know! 

MWT

Often the things the lenders are reacting to are more subtle than the charges, it is more to do with what happens if you don't pay the charges and the right of the 'estate' to encumber the title in any way as a result.

So much depends on the exact wording they have used...

K_S

Amy32 said:

We are in the midst of applying for a mortgage for a new build. The valuation was carried out and has been valued as expected but they have asked for further info on estate charges (yearly maintenance payment). Has anyone had experience of this and has it impacted on your mortgage application/offer? 

@amy32 It depends on the specifics. If all that is referred to is reasonable services charges to maintain the estate that a new build freehold sits on, that should be ok. For example I did a mortgage for a new-build house last week where there would be a annual charge for maintaining drainage starting at £78/year, increasing by RPI/CPI (can't remember exactly which) and ending after 25 years. The lender queried it but were happy with that.

Some developers structure it in a more complicated way which gives them a right to take severe action if the buyer doesn't keep up their end of the bargain. Without going into too much detail, those sort of arrangements are termed estate rentcharges. These can be a bit more onerous and more problematic as these could potentially lead to the lender’s security being severely undermined. Lenders such as HSBC, Virgin and Newcastle don't normally accept them.

If it was an estate rentcharge, I think you'd probably know by now.