Leasehold and freehold on house

LisaPeters

Thanks for your response Adrian, I only found out about the leasehold when my solicitor sent me the contract to sign yesterday, therefore my mortgage company are unaware of this currently. I will obviously inform them now. I am thinking of just pulling out of the purchase, as I feel it is a risk. The house costs £277,000,  the indemnity is for £230,000, should it be for the value of the property. Should my solicitor have informed me of this at the begining of the process?

davidmcn

LisaPeters said:

Thanks for your response Adrian, I only found out about the leasehold when my solicitor sent me the contract to sign yesterday, therefore my mortgage company are unaware of this currently. I will obviously inform them now.

That's only likely to cause confusion, given you'll be speaking to somebody who probably knows even less about what you're talking about than you do. If your lender needs any advice, that's for your solicitor to deal with. And I'm not sure that they even need to be notified if the solicitors are satisfied that the insurance adequately covers the risk. If your solicitor is happy to proceed to exchange then they obviously don't think it's a fundamental problem for the lender.

I am thinking of just pulling out of the purchase, as I feel it is a risk. The house costs £277,000,  the indemnity is for £230,000, should it be for the value of the property. Should my solicitor have informed me of this at the begining of the process?

It should be for the value of the leasehold interest (as in the worst case scenario, what would happen is the insurers would pay the leaseholder to buy them out), which (with only 15 years to go) is going to be significantly less than the freehold interest - so £230k ought to be more than adequate.

Ideally you'd have been told about this at an earlier stage, but in all probability your solicitor didn't know about it right at the beginning either.

princeofpounds

Do not inform your mortgage company separately. Your solicitor works for the mortgage company as well as you (that's why they have to be on the lender's 'panel') and they will handle all that. If the solicitor's advice is that you should be happy to proceed, your mortgage company is fine with it.

This kind of situation is not common, but neither is it unheard of. Registration of property titles did not become compulsory everywhere in England and Wales until 1990 (although much earlier in some areas). It's a shame there isn't more history shared with you, because there are two scenarios here:

1) Someone owned the lease, back before registration became compulsory. That person then bought out the freehold from the previous freeholder. The freehold was registered but the lease was not, and it's been lost.

2) Someone owned the freehold. They issued a lease to a third party person before registration was compulsory. That third party person disappeared and abandoned the property, and the freeholder took back possession without a court process (or at least any evidence of it). At some point the freeholder registered the property.

The first scenario is much more likely than the second, because people simply don't tend to abandon valuable assets like a long lease on a property, and when they do, freeholders usually follow proper process to repossess the property. It's also a scenario where there is nothing at all to worry about.

The second scenario is the one the insurance is really protecting you against. It's rather unlikely, and as stated the most likely scenario would be the insurer paying the leaseholder to surrender the lease and go away.

So yes, this isn't a neat title, but I would be happy to proceed on this basis if that is the advice from my solicitor.

You should get the solicitor to talk you through this, so you understand things like why they think it was situation #1, what happens if it's situation #2 and the leaseholder reappears. 

LisaPeters

princeofpounds said:

Do not inform your mortgage company separately. Your solicitor works for the mortgage company as well as you (that's why they have to be on the lender's 'panel') and they will handle all that. If the solicitor's advice is that you should be happy to proceed, your mortgage company is fine with it.

This kind of situation is not common, but neither is it unheard of. Registration of property titles did not become compulsory everywhere in England and Wales until 1990 (although much earlier in some areas). It's a shame there isn't more history shared with you, because there are two scenarios here:

1) Someone owned the lease, back before registration became compulsory. That person then bought out the freehold from the previous freeholder. The freehold was registered but the lease was not, and it's been lost.

2) Someone owned the freehold. They issued a lease to a third party person before registration was compulsory. That third party person disappeared and abandoned the property, and the freeholder took back possession without a court process (or at least any evidence of it). At some point the freeholder registered the property.

The first scenario is much more likely than the second, because people simply don't tend to abandon valuable assets like a long lease on a property, and when they do, freeholders usually follow proper process to repossess the property. It's also a scenario where there is nothing at all to worry about.

The second scenario is the one the insurance is really protecting you against. It's rather unlikely, and as stated the most likely scenario would be the insurer paying the leaseholder to surrender the lease and go away.

So yes, this isn't a neat title, but I would be happy to proceed on this basis if that is the advice from my solicitor.

You should get the solicitor to talk you through this, so you understand things like why they think it was situation #1, what happens if it's situation #2 and the leaseholder reappears. 

Thank you so much for the advice, my solicitor has just dropped this on me even though she has had the documents since December, can you advise where I can get a second opinion on this, someone to look at the documents and put my mind at rest?

princeofpounds

You don't really need a second opinion - you need your current solicitor to walk you through their decision-making so you understand what your situation exactly is.

I think most people would like to tell you it's going to be fine and with the indemnity you have little to worry about. But without some history on the origin of the lease no-one can 100% claim there won't be any hassle (the indemnity should protect the financial outcomes). But it's one of those 99% things. The fact that the mortgage lender is willing to lend tells you a lot; they view the property as good collateral.

LisaPeters

princeofpounds said:

You don't really need a second opinion - you need your current solicitor to walk you through their decision-making so you understand what your situation exactly is.

I think most people would like to tell you it's going to be fine and with the indemnity you have little to worry about. But without some history on the origin of the lease no-one can 100% claim there won't be any hassle (the indemnity should protect the financial outcomes). But it's one of those 99% things. The fact that the mortgage lender is willing to lend tells you a lot; they view the property as good collateral.

My deposit is over £100,000 so this is also my worry.

princeofpounds

I'm not sure I follow what your deposit has to do with anything.

LisaPeters

It's my life savings so obviously I am scared of anything going wrong. Also doesn't it lesson the risk to the mortgage company?

davidmcn

LisaPeters said:

It's my life savings so obviously I am scared of anything going wrong. Also doesn't it lesson the risk to the mortgage company?

Like we've already advised, there's a minuscule risk of anything going wrong, and if it does, that's where the insurers step in. There are 101 more likely risks in being a property owner than this one.

Yes, lower LTV does mean a lower risk to the lender. That doesn't mean you need to worry more about it. Like I said above, in all probability the lenders haven't thought about it at all, they (like you) are relying on your solicitor's advice.

AdrianC

LisaPeters said:

My deposit is over £100,000 so this is also my worry.
...
Also doesn't it lesson the risk to the mortgage company?

Mortgage lenders care about whether the property is good security for the money they're lending you. Bluntly, if and when they repossess, can they sell it and get their money back?

They care about the loan-to-value, because that suggests whether they'll get all of their money back, or just most of it.
If they think the property slightly over-valued, then a low loan-to-value simply gets viewed by them as a slightly higher one. If they think the LtV is too high, they won't lend that much.

But - more importantly here - they also care about the absolute saleability. If they don't think the property easily saleable, then they'll simply refuse to accept it as security.

If they thought there was a genuine risk of somebody opening the door a week after completion, staring at you, then shouting "Why are you in my house? Look - I can prove I'm the leaseholder... <waves papers>", then they simply would not lend at all.