Buyers mortgage rejected on 84 year lease

Melziejane

As the title states our buyers mortgage has been rejected as our lease is 84 years (shared ownership property needs 85 or more apparently). 

Now we are willing to informally extend it but my question is will the mortgage company agree to her mortgage with the lease extension in progress with a view to finish on completion? Or would the lease extension need to finalised before they even agree to lend? 

pinkshoes

The problem here is the value of your property is likely to be a lot more once the lease is extended. Who is going to be paying for the extension?

Lots of leases will require the owner to have lived there 2 years before extending, so the new buyers would need to be cash buyers.

On this basis, I'd suggest it's easier to extend it yourself before selling. Saying that, I think you can start the process yourself then pass the "right to extend" onto your buyer. You'd need legal advice about this though.

Melziejane

The difference here is it's a shared ownership property so cash buyers isn't an option and property value is "capped" for affordable homes. 

Begrudgingly we will pay for the lease extension (otherwise we can't move) but I just can't figure out if a mortgage company will lend while it's in process? Otherwise we'll probably lose our buyer if she has to wait until the lease extension is completed before applying for a mortgage again. 

pinkshoes

This might be worth a read:
https://www.moneysavingexpert.com/mortgages/extend-your-lease/

I'm sure I read somewhere you can start the process then hand the right over to the buyer, but you would need to take proper legal advice. 

On the plus side it's not below 80 years which starts to become a problem.

If you extended the lease yourself, would that not make the property worth more money?

eddddy

pinkshoes said:

I'm sure I read somewhere you can start the process then hand the right over to the buyer, but you would need to take proper legal advice. 

That's not relevant in this case, because...

• 1) You're probably talking about a statutory lease extension - you can't do that with shared ownership

• 2) If the mortgage lender requires a 85 year lease, they won't accept that approach - because the OP could complete the purchase, and then discontinue the lease extension process

JM68

As others have said, you can start the process and let the new buyer extend it.

However, in respect of your question about whether the mortgage company would lend while its in progress the likely answer is no, because its not extended until it actually is (and is registered at the Land Registry before completion).

So you probably need to find a cash buyer to proceed without extending, who will no doubt expect a discount to reflect the short lease.

If, as you infer, you are happy to extend yourself before sale then you will need to consider the cost and, more importantly, the time it will take.  For our flat it took a year to complete our lease extension before we could list and sell.

eddddy

Melziejane said:

Begrudgingly we will pay for the lease extension (otherwise we can't move) but I just can't figure out if a mortgage company will lend while it's in process? Otherwise we'll probably lose our buyer if she has to wait until the lease extension is completed before applying for a mortgage again. 

No - as I mention above, if the mortgage lender requires 85 years, they won't lend while the lease extension is in process. Because the buyer might not complete the process.

• I'm not very familiar with mortgages for Shared Ownership, but I think it's only some lenders who impose an 85 year limit.

• Have you asked your housing association about a lease extension - how much it might cost and how long it would take? They might say you need to get a valuation from a surveyor to work out the cost. But, in theory, it could be completed within, say, a couple of weeks

• You can also ask the housing association about doing a "lease extension on completion".

In simple terms, with a lease extension on completion, the buyer would be buying 2 things at the same time...

• A property with a 84 year lease from you
• A lease extension (probably for an added 80 years) from the housing association

Both those purchases would exchange contracts on the same day, and then both those purchases would complete on the same day. 

The mortgage lender would be happy, because on completion day, the property would have a long lease.

But the buyer would have to find an extra chunk of money to pay for the lease extension, so they might want to reduce the amount they pay you.

eddddy

JM68 said:

As others have said, you can start the process and let the new buyer extend it.

As I mentioned above - you're probably talking about a statutory lease extension, and that's not relevant for Shared Ownership.

Melziejane

eddddy said:

Melziejane said:

Begrudgingly we will pay for the lease extension (otherwise we can't move) but I just can't figure out if a mortgage company will lend while it's in process? Otherwise we'll probably lose our buyer if she has to wait until the lease extension is completed before applying for a mortgage again. 

No - as I mention above, if the mortgage lender requires 85 years, they won't lend while the lease extension is in process. Because the buyer might not complete the process.

• I'm not very familiar with mortgages for Shared Ownership, but I think it's only some lenders who impose an 85 year limit.

• Have you asked your housing association about a lease extension - how much it might cost and how long it would take? They might say you need to get a valuation from a surveyor to work out the cost. But, in theory, it could be completed within, say, a couple of weeks

• You can also ask the housing association about doing a "lease extension on completion".

In simple terms, with a lease extension on completion, the buyer would be buying 2 things at the same time...

• A property with a 84 year lease from you
• A lease extension (probably for an added 80 years) from the housing association

Both those purchases would exchange contracts on the same day, and then both those purchases would complete on the same day. 

The mortgage lender would be happy, because on completion day, the property would have a long lease.

But the buyer would have to find an extra chunk of money to pay for the lease extension, so they might want to reduce the amount they pay you.

So yes we would need a valuation to find the premium we'd have to pay, on top of that we need to pay

£850 + vat valuation fee
£750 + vat their solicitors fees
£100 + vat admin fee

So a mortgage company would be happy with a lease extension on completion? 

Also we are happy (not really) to pay for the lease extension so our buyer doesn't have to so how would that work? Sorry for the stupid questions. 

user1977

JM68 said:

However, in respect of your question about whether the mortgage company would lend while its in progress the likely answer is no, because its not extended until it actually is (and is registered at the Land Registry before completion).

The lease extension can be completed simultaneously with the sale, it doesn't need to be registered before the sale (though that's not to say you won't encounter solicitors who think otherwise...)

kingstreet

IMHO the buyer should change lender. It will be quicker.