From 11 May 2017, we’ll be making changes to the way we value new build properties with a leasehold tenure. The changes look to address the practice of using leasehold tenure where it is unnecessary, and ensure that onerous leasehold terms, including ground rents, are considered and controlled in order to protect our members.
For new mortgage applications received from 11 May 2017, the following valuation policy will apply on new build leasehold properties:
- The minimum acceptable lease term on new build properties (including office conversions) will be 125 years for flats and 250 years for houses.
- The maximum starting ground rent on new build properties with a leasehold tenure will be limited to 0.1% of the property value.
- Ground rent and other event fees must be reasonable at all times during the lease term. For example, ground rent escalation should be linked to RPI (Retail Price Index) or a similar index, and unreasonable multipliers of ground rent won’t be permitted, for example doubling every 5, 10 or 15 years.
The policy only applies to new build properties.
Properties falling outside of the above policy
Where the property falls outside of the policy in points 1 and 2, it will be declined.
Where the property falls outside of the policy in point 3:
- Where the Valuer believes marketability will be severely adversely affected by the lease terms, they may decline the property.
- In all other instances, we’d expect the Valuer to reflect any onerous lease terms in the mortgage valuation figure they provide.
Pipeline cases
The new valuation policy will apply to new mortgage applications received from 11 May 2017. Where the mortgage application was received before 11 May, new build leasehold properties will be valued under current policy.
This won’t apply to Shared Ownership applications. These will continue to be assessed under current Shared Ownership policy.
