MortgagesMay 5 2017

Nationwide to refuse mortgages on 'unfair' new builds

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Nationwide to refuse mortgages on 'unfair' new builds

Nationwide Building Society is to refuse mortgages on new build properties that fail to meet its strict new criteria on lease terms and ground rents.

The lender is introducing a valuation policy for new build leasehold properties designed to tackle concerns in the market about unfair leasehold practices.

For valuation purposes, all new mortgage applications on new build properties received by the building society from 11 May 2017, must have a minimum lease term of 125 years for flats and 250 years for houses.

In addition, the maximum acceptable starting ground rent on all new build leasehold properties will be limited to 0.1 per cent of the property’s value.

The ground rent must be reasonable at all times during the lease term, with unreasonable multipliers such as doubling every five, ten or 15 years not allowed.

Escalation should instead be linked to a verified index, such as the retail prices index.

If the valuer believes the marketability of the property will be severely affected by unreasonable lease terms, they may decline the property, or reflect those terms in the valuation figure they provide to the lender.

Unfair leasehold terms and rapidly increasing ground rents have been the subject of much recent media, political and industry criticism, as developers offering new build leasehold properties for sale are, in some cases, also selling the freehold to the property to a third party.

Robert Stevens, Nationwide’s head of property risk, data and strategy, said: “We have decided to make changes to the way we value new build properties on a leasehold basis.

"We are doing this to address the practice of using leasehold tenure where this is unnecessary, particularly for new build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled in order to safeguard our mortgage members.

The changes are limited to new applications on new build transactions from 11 May 2017 and will not apply to properties being sold second hand.

It will apply to both Nationwide and The Mortgage Works (TMW) mortgage applications.

Alan Lakey, director, Highclere Financial Services, said: "The Nationwide is setting the tone for the market and could lead other lenders to follow suit but prospective borrowers may have less choice."