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Nationwide introduces new valuation policy for new build leasehold properties

Nationwide Building Society has become the first major property lender to introduce a valuation policy for new build leasehold properties designed to protect mortgage-holders from onerous leasehold terms and rising ground rents.23 May 2017

The move was praised by property expert Kevin Boa of Pinsent Masons, the law firm behind Out-Law.com, who said it could be a positive step for the residential property market.

Nationwide said that as of 11 May, the minimum acceptable lease term on new build transactions - including office conversions - will be 125 years for flats and 250 years for houses. The new policy applies to all new mortgage applications on new build properties.

The building society added that the maximum acceptable starting ground rent on all new build leasehold properties would be limited to 0.1% of the property’s value.

Under the new policy, the property's ground rent must be reasonable at all times during the lease term. 'Unreasonable' multipliers, such as those that might see rent doubled every five, 10 or 15 years, are barred under the new policy.. Escalation must instead be linked to a verified index, such as the Retail Price 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.

Boa said: “If other lenders follow Nationwide’s lead, this will be good for the residential property market as it sets out a clear view of what will be acceptable for new build ground rents. This will hopefully stop the imposition of unreasonable ground rents, but the problem remains for existing owners with punitive ground rents given the new rules will not apply to existing stock."

“It will be important for housebuilders, developers and landowners to curtail their ground rent ambitions so as not to fall foul of these lending restrictions,” Boa said. “This is also relevant for geared rent schemes, where some landowners seek to extract a long term revenue from the completed development.”

Nationwide head of property risk, data and strategy Robert Stevens said the lender was making the changes “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”.

Stevens said the issue was a significant risk for its members and that the policy would “challenge what we believe to be poor practice in the new build market”.