mortgage on head lease/under lease flat?

wbass

Long-time lurker, first-time poster here, so thanks for bearing with me and this long post....

I've identified a 1-bdrm flat I want to buy in east London and had an accepted offer. It's a maisonette in a row of Victorian red-brick purpose-built flats. It has a lot of features I've been seeking--large, eat-in kitchen, end of terrace, side access--and is nicely finished and in good shape overall. I'd quite like to buy it and am also very sick of flat hunting over these last two (!) years.

To my surprise, I've learned that it has a somewhat unusual leasehold situation.

The overall freeholder has had freehold over the entire road (and several roads adjacent, at least 100 flats in total) from 1910 on. It's possible they might have been the original property developer or associated with them. For better or worse, there's not much about this company online, just an address.

Below them, another company has the head lease, circa 900 years I believe. They're a big company, familiar to many Londoners, with not a particularly great rep. (Almost none of these companies are held in much esteem.)

And then below them, there's the under lease on this flat, which is what I would be buying. My solicitor tells me she usually only sees under leases in big blocks of flats, and that one on a maisonette is very unusual, but that practically speaking these situations are all broadly the same. 

--I've had two mortgage brokers tell me that this leasehold situation makes it much trickier to get a mortgage. They're telling me, essentially, that the big high-street banks, being box-tickers and not liking any extra complexity, won't lend on such a property. They did indicate, however, that a few specialist lenders might.

--A third mortgage broker did some more digging for me, and found one of these specialist lenders that he says would work with the property and at a "competitive rate." About 1% higher than typical high-street rate, I believe. He also said there might be a couple other specialist lenders who'd take it on, but that their rates are quite high, 7 or 8% (I think).

--So, it seems I could, just about, get a loan on this property. But I'm also quite concerned about future resale. If 80% or more of mortgage lenders won't touch this property, then does that leave me, 10 years down the line or however long, with a flat that I can only sell to cash buyers or the occasional persons willing to brave the specialist mortgage lenders?

--Or am I making too much out of all of this?

--Or should I call even more mortgage brokers and get more info/advice?

The seller's agent says that flats on the road--who I can see, from docs forwarded to me by my solicitor, have the same freeholder--have sold in recent years. A quick google search says he's right about that, but I also don't know if they would all have the same head lease holder. He also says he just had an exchange on a flat with a similar head lease/under lease arrangement last week. Given that this kind of arrangement is not entirely unheard of, surely some (or even many) people are getting mortgages on these? It also seems, according to the agent anyway, that the current owner has a mortgage with Nationwide and successfully re-financed 10 years ago. However, I can't know the terms of that or for how much his loan is. (I think he's held the property for quite some time, as there's no record of it selling online.) I'm also told that the big banks have tightened up on unusual loans in the last decade or so.

I'm very much sick of the property hunting--have seen 150+ places and had a few heartbreaks along the way--but I also want to be cautious of getting into a situation where I have trouble selling myself. I won't want to stay in a 1bdrm for forever, after all. Two mortgage brokers advised me I might want to walk away, but if this head lease/under lease thing isn't actually a big deal, then I could see my way toward proceeding.

Thanks for any feedback, advice, or, especially, thoughts from anyone who might have gone through something similar. I would certainly like to buy a freehold or share of freehold property, but they're both expensive and hard to come by in this part of London. Thanks again.



 

Mark_d

I think it's good that you considered how difficult the property would be to sell when you finally move on.  Properties that don't  sell well  might look attractive when you're buying...but you'll be in a terrible position when it comes to selling.  I speak from experience

wbass

Mark_d said:

I think it's good that you considered how difficult the property would be to sell when you finally move on.  Properties that don't  sell well  might look attractive when you're buying...but you'll be in a terrible position when it comes to selling.  I speak from experience

Yes, I'm definitely proceeding with caution here. I know I'm going to want to sell it in 7-10 years.

It's exceedingly hard to tell if this is a somewhat common situation or if I should be very wary. The mortgage brokers are telling me one thing, the estate agent another. I'm inclined to trust the former over the latter. But other homes along the road and beyond must be dealing with something similar and not finding it impossible. It's all a bit baffling tbh.

user1977

Did any of them explain what they thought the risk is? We’ve seen under leases mentioned on the house buying board numerous times but I don’t remember anyone saying there’s a mortgageability issue. I wonder if the brokers misunderstand the situation. What does your solicitor think?

ETA: I can't see anything in the UK lenders handbook about it (which is where I'd expect to see any prohibition or additional requirements for the solicitors to watch out for).

amnblog

The trick here is not to focus on whether you can get a mortgage on this property today. The trick is to focus on what happens for potential buyers when you come to sell.

The last thing you want is a property with a 25 year financial commitment that is difficult to move on.

wbass

user1977 said:

Did any of them explain what they thought the risk is? We’ve seen under leases mentioned on the house buying board numerous times but I don’t remember anyone saying there’s a mortgageability issue. I wonder if the brokers misunderstand the situation. What does your solicitor think?

ETA: I can't see anything in [link removed] about it (which is where I'd expect to see any prohibition or additional requirements for the solicitors to watch out for).

Yes, I asked about that, and the answer I got from a couple brokers was essentially that the high-street banks don't like to deal with any extra complexity. They want to tick the boxes, do it quickly, almost automatically, and are going through such a volume of applications that anything out of the ordinary will make them much less keen.

One broker told me this under-lease situation would knock out 80% of lenders. Another found a more specialist lender who could do it for a 1% higher rate. A third told me flatly that this might be a property to avoid for concerns over resale.

To further confuse things, the current seller seems to have gotten a high-street mortgage, and possibly refinanced with same in the last ten years. And other flats in (probably) the same situation on the road have sold in recent years. But I guess I can't know the terms or amount of the seller's mortgage (probably much less than the current sale price) or whether the other flats have the same head/under lease situation. And I agree that nowhere on the internet (FWIW) can I find that under leases rule out getting a mortgage.

All very confusing.

My solicitor doesn't seem to know much about mortgageability in this case. I made these inquiries with brokers on my own steam.

user1977

I'm not sure where the complexity would even arise from the lender's point of view? They don't scrutinise the head lease etc, that's (your/their) solicitor's job at your expense.

wbass

user1977 said:

I'm not sure where the complexity would even arise from the lender's point of view? They don't scrutinise the head lease etc, that's (your/their) solicitor's job at your expense.

I'm really not sure tbh. I think the "complexity" these brokers mentioned just has to do with the fact that there's an extra layer involved in the leasehold agreement. I've spoken to three brokers, all of whom indicated mortgages would be more difficult to get. One did locate a willing lender. The others seemed to indicate the risk to resale might not make the purchase worthwhile.

I've called another three places, and we'll see what they say. But it does seem there is *some* risk here in terms of resale. Whether it's tolerable or not, it's hard to say.

I really don't want to walk away from this purchase. On the other hand, I really don't want to have to look again. Quite frustrating.