There have been positive developments recently for thousands of leaseholders who are trapped in unaffordable mortgage products. Our Solicitor Richard Collins explains more.
Following the report by the Financial Conduct Authority (FCA) last month, which examined what more lenders could do to help “mortgage prisoners,” 59 lending institutions (making up over 90 per cent of the UK’s residential mortgage market) have agreed to new common standards. The lenders will be required to write to as many as 10,000 homeowners who may be trapped in more expensive deals than they need to be.
Most of these homeowners took out mortgages before new, stricter rules on affordability were introduced in 2014. The letters from the lenders will outline some of the similar but cheaper mortgage deals available from their existing lender and should arrive by the end of the year.
So far the only big name that has yet to agree to the new voluntary common standard is TSB but this may happen in the future. A TSB spokesperson said: “We are fully supportive of the UK Finance initiative and we are working with them to completely understand how this project will work. We are hoping to join the scheme over the coming weeks.”
The news comes hot on the heels of last week’s proposals by the Law Commission as part of their 13th Programme of Law Reform, which outlined a range of measures to help existing leasehold homeowners buy the freehold of their houses or extend their leases and eliminate ground rent.
Under the existing system, the only option for leaseholders who wish to take control of the management of the freehold is Enfranchisement. Enfranchisement is the process of acquiring the freehold reversion to your leasehold title and allows leaseholders to take control of the management of the leasehold block by setting up a leaseholder owned Management Company.
Enfranchisement, in its current form, is an often costly and complicated process with separate rules for leaseholders of flats and of houses and the current system has been accused of encouraging a “gaming” approach by some parties who manipulate the complicated procedures in the system to refuse applications on arbitrary points of law.
The Law Commission has suggested a whole host of improvements that should be implemented into the system. These include removing the requirement for the leaseholders to have owned the property for two years before making a claim, making the enfranchisement procedure simpler to understand, to minimise disputes and prevent leaseholders falling into legal traps and strengthening the rights for leaseholders of houses to buy the freehold from their landlord.
Other proposals include setting out new options for reducing the price that leaseholders pay to the landlord such as by changing the formula used to calculate the costs of a claim and lengthening new lease extensions without a ground rent to 125 or 250 years instead of the current 90-year limit. Perhaps the most popular measure suggested by the Law Commission will be the proposal to cap or even do away with the mandatory requirement for leaseholders to cover the legal costs of their landlords during the lease extension of enfranchisement process. All eyes will now be on the government to see if the proposals by the Law Commission are made into law.
For more information and advice on Enfranchisement, please contact a member of our Residential Property team for impartial legal advice. Call on 01708 229444 or email us using our contact form.This article was written by Richard Collins, Solicitor at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2018.