Leasehold Purchased 2018, Now Told I Need A Solicitor By The Building Society

GunnyGooGoo

Can anyone offer me advice on costs and possible effect on new mortgage rate? I purchased my semi-detached house in 2016 with a mortgage from the Nationwide BS.  The house had a leasehold on it for 999 years at a cost of £60 a year to the leasehold company.  In 2018 I contacted the leasehold company about purchasing the leasehold, and they agreed to sell to me. They quoted me the price, £2,200 which included legal and land registry fees. There was no mention that I would need to do anything else.  This was all completed within a few months, and I received my title document from the Land Registry office. 

Today I am purchasing a new mortgage product with the Nationwide as my deal runs out in August. I've told the Nationwide I purchased the leasehold myself in 2018 and they are stating they can't change the property to freehold on their system until, quote, "before we can change your mortgage to freehold our charge needs to be added to the freehold title.  Your solicitor can do this by completing a Mortgage by way of additional security and this deed can be found on our Nationwide Lawyers site". Unquote. 

My questions - does a leasehold building attract a different (higher) mortgage rate when purchasing a new mortgage product?  Is it worth delaying getting a new mortgage deal until the Nationwide systems are updated from leasehold to freehold or will this have no impact on mortgage rates?  if it has no impact, and I'm not selling this house, then is there any point on paying a solicitor to contact the Nationwide to tell them I now own the freehold?  If I do need to use a solicitor, has anyone any idea on costs associated to doing this for me?

Thank you for any help!

steampowered

Nationwide are correct that this is a leasehold mortgage. You own the freehold and the leasehold, but Nationwide only has security over the leasehold.

In order for Nationwide to have security over the freehold, you would need to sign a legal charge over the freehold and that charge would need to be registered at the land registry.

Unless Nationwide would offer you a lower rate if they took security over the freehold too, which is unlikely, there is no need for you to do anything with Nationwide.

Could you save money by remortgaging with a different lender? Try https://www.moneysavingexpert.com/mortgages/best-buys

princeofpounds

I think some of your terminology is mixed up. You purchased your leasehold house in 2016. The lease was 999 years with a ground rent of £60 p.a. In 2018 you contacted the freehold company about purchasing the freehold.

You will need a solicitor if you want to change the mortgage from being on the leasehold title to the freehold title. Although the same physical property underlies both of them, legally it's actually like moving the mortgage to another property as the titles are separate unless you merge them (which is also a legal process).

At the moment, if you default on your mortgage and the bank repossesses the property, then they take the leasehold house. You will remain the freeholder and get your £60 a year ground rent, but obviously it's of limited use if you don't also own the leasehold house!

Nationwide's systems will not 'update' to reflect the ownership of the freehold - there is nothing automatic about this process because your mortgage is secured on the leasehold title alone.

Do freehold and leasehold title attract different mortgage rates? Not really, as far as I am aware. As long as the leasehold title is good enough security for the mortgage company, that's enough. The only exception could be if you tip into a lower loan-to-value bracket by virtue of a new property valuation for the new mortgage being slightly higher if the freehold is included. Given it's a 999 year lease with minimal ground rent then the value of the freehold itself is likely to be low, but you might be sitting next to the threshold so worth thinking about.

So no, you don't need to appoint a solicitor to add the freehold title to the security for the mortgage, unless you're in that narrow situation where it could change your LTV and be worth it for that reason.

One exception - I don't know if your lender has a rule in their terms and conditions that you must include the freehold title on any remortgage if you own it. I doubt it, as they would probably have brought it up in your discussion. But something to check.

eddddy

GunnyGooGoo said:

... they can't change the property to freehold on their system until, quote, "before we can change your mortgage to freehold our charge needs to be added to the freehold title.  Your solicitor can do this by completing a Mortgage by way of additional security and this deed can be found on our Nationwide Lawyers site". Unquote. 

I think you've slightly misunderstood the problem.

You now own 2 things:

1. A leasehold house - I guess worth hundreds of thousands
2. A freehold title worth £2200

Currently, your mortgage is secured against the leasehold house - so Nationwide have a Charge on your leasehold house.


Nationwide's lending rules say that if you own a leasehold property and you own the freehold - they need a Charge on both titles.


They already have a Charge on the leasehold house, so they now require a Charge on the freehold title as well. And you'll need a solicitor to arrange this.


The freehold only increases their security by £2200, so Nationwide will probably ignore this in their valuation - and I can't imagine it changes the mortgage deals available to you.




(I guess some people might say that if you didn't tell Nationwide that you had bought the freehold, they would never have known, and you wouldn't have the hassle of an extra Charge.  But your mortgage t&cs might say that you must tell them about this kind of thing.) 

kingstreet

As this has zero impact on your choice of customer retention product why not leave the tenure alone until you sell, or move to another lender?

eddddy

kingstreet said:

As this has zero impact on your choice of customer retention product why not leave the tenure alone until you sell, or move to another lender?

Maybe I've misunderstood - but I don't think Nationwide are discussing a change in tenure.


I think Nationwide are simply saying that if you own the leasehold title and the freehold title, they require a charge on both - which requires a solicitor.


This is similar to their position if you own a leasehold flat and you own the freehold building as well:

5.8.2 If the borrower occupying one of the flats also owns the freehold, we will require our security to be:

• the freehold of the whole building subject to the long leases of the other flats; and 

• any leasehold interest the borrower will have in the flat the borrower is to occupy.

Link: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/nationwide-building-society/

user1977

Nationwide's mortgage conditions are here.

"New rights you must tell us about
If you gain any new property rights, they’ll become part of our security. You must let us know about the new rights within a month. New property rights may include:
• A new or extended lease on your property.
• An interest in the commonhold or freehold of your property.
• An interest in the freehold of any building which includes your property.
• An interest or right which benefits your property in or over other land or buildings.

If requested, you must give us evidence to show that you own the new interest. If we ask for it, you must also send us any relevant documentation and give us a charge over the new interest. You’ll need our agreement to the terms of the charge."

GunnyGooGoo

The power of the internet!  Thank you all for your replies, and your knowledge. I will re-read your replies and mull over what to do next. Again, thank you all!

AlexMac

I can't add to the above advice, but after 30-40 years with Nationwide (and their predecessors) I've had such good service, and been offered such good Mortgage products that I'd be inclined to jump through whatever hoops they require.

Can't comment of what transaction would cost, but I bet it will be a lot less than the £700-900 estimate which the Nationwide suggested I'd have to cough up when I recently paid off my longstanding loan with them because it ended as I was hitting my mid '70's, effectively re-mortgaging to one of their great new "Lifetime" deals.  I thought it pointless, especially as they were giving me a grand cashback to cover the fees, but after an incredibly demanding and fussy legal process I realised they had their protocols and that these were partly protect me; also that they insisted I appoint an independent brief in part to protect them against any future allegations of mis-selling. 

And at least they're still a Mutual!