The Beesons Blog

Shared Ownership – Distinctly lacking in MPC

1st September 2011 by Stuart Beeson

On the barren shared ownership plains of Milton Keynes thousands of Lesser Spotted Shared Ownership Leases wander in herds across the landscape. They were born in better times when mortgage funding was thick and lush. Now they languish and in all probability represent a species on the verge of extinction. It’s a toss up between the Giant Panda and the “Lesser Spotted” as to which will die out first.

So where does the threat of extinction come from? It comes from a drought in mortgage funds that has become more pronounced following the so-called “credit crunch”. There is a well of funds that could provide life for these ailing creatures, but it is controlled by the Council of Mortgage Lenders. They will only extend relief if leases are branded with the magic initials “MPC”. The Lesser Spotted is not so branded.

MPC stands for Mortgagee Protection Clause. It is facility within a lease that allows a lender to cover its losses on the sale of a repossessed shared ownership property. Provided certain pre-conditions have been met prior to the creation of the mortgage the lender can approach the landlord and require the landlord to handover, at very little expense to the lender, the remaining (landlord’s) share in the repossessed property. These clauses did not exist until the late 1990’s. Unfortunately, for many householders in Milton Keynes, their shared ownership leases were granted before the advent of these clauses.

We now have a situation where it is not possible to say with absolute certainty whether these leases are mortgageable, or if they are that they can be mortgaged for more than 75% of their value.

Given that shared ownership was developed as a means of providing low-cost housing it is reasonable to assume that many prospective purchasers will not have large amounts of cash available to them to fund the size of deposits that lenders will expect them to provide. At a stroke the lenders have seriously undermined the shared ownership concept.

Lenders argue that it is open to shared ownership landlords to vary the affected leases. This is true and some have but the policy has not been widely adopted. There is no commercial reason why landlords should agree to. MPCs are potentially costly. They are being asked to potentially sign away a valuable asset for little in return. It is unlikely that insurers will want to come into the market to provide in indemnities to lenders where no MPC exists, except on commercially viable terms. So far, I have yet to see an insurer who will.

Where does that leave the buyer who wants take on a Lesser Spotted Shared Ownership Lease, or the tenant who is presently owns one? For the time being somewhat in the wilderness, which is a shame. These leases meet the purpose they were designed to serve. They provide a good and marketable security for mortgage purposes. For the prudent lender there is no reason why the borrower is more likely to default because they own a shared-ownership lease without a MPC than any other borrower. Nor is there any particular reason to suppose that such borrowers will more readily fall into negative equity.

The solution lies with the lenders and the landlords. Either lenders will have to relax their lending criteria or landlords must vary their leases. In the meantime whilst the Lesser Spotted remains on the endangered species list, my money’s on its survival.

Lease Extensions

3rd August 2010 by Stuart Beeson

Clients are starting to contact us about extending their leases. This evidently a growing problem, which is affecting an increasing number of people in Milton Keynes . The addresses that have most regularly come to our attention are in:

Rowle Close, Stantonbury;
Clay Hill, Two Mile Ash;
St Margaret's Court, Bletchley;
Bute Brae, Bletchley; and
Caithness Court , Bletchley.
Inevitably the list is going to get longer.

The problem is this. Mortgages are increasingly repayable over 35 years. Mortgage lenders expect to lend on a lease that is at least 30 years longer in duration than the mortgage term. So a lease with 65 years left to run is often the minimum that will be acceptable for mortgage purposes. Given that, on average most people move at least every 7 years most buyers will want to see not less than 72 years on the lease before they buy so that they have 65 years or more on the lease when they come to sell.

Many of the leases we are now seeing were granted around 1980 and often earlier than that. Mostly they were granted for a period of 99 years. The mathematics is simple. With 30 years now having elapsed the leases have less than 70 years left to run.

If you have a lease with less than 70 years left to run and have owned your property for more than 2 years you can ask your landlord to extend the lease. It comes at a cost however. Landlords generally know that if they cannot agree a price for the lease extension the tenant can have the figure set by the Leasehold Valuation Tribunal (LVT). They tend to be realistic therefore it also means that there is very little likelihood of the landlord accepting a counter-offer. Why should they? An application to the LVT can be very expensive for a disgruntled tenant. If the tenant doesn't accept the landlord's offer and cannot afford a challenge the only option is to decline it. The lease however continues to get shorter by the day. As you might expect, the shorter the lease the more expensive the cost of extending it becomes.

Our advice is always to be realistic about the cost of lease extensions and act sooner than later because delaying will cost more money. Sometimes the cost simply cannot be found. In that event we would suggest selling sooner than later and entering into a contract with the buyer that allows the seller to obtain the lease extension by paying for it with the buyer's money.

First Time Buyers and Stamp Duty Land Tax

25 March 2010 by Stuart Beeson

The 2010 Budget statement made by the Chancellor on 24th March 2010 outlined a new relief from Stamp Duty Land Tax ("Stamp Duty").

In essence, to qualify a buyer must:
be an individual or group of individuals;
complete their purchase before 25th March 2012;
pay no more than £250,000 for the property;
purchase a "major interest" (which means either freehold property or a leasehold property that has an unexpired leasehold interest of at least 21 years);
purchase a property that is wholly residential;
intend to occupy the property as their only or main residence; and
never previously have acquired a major interest (as described above) in residential property anywhere in the world.

To claim the relief a buyer must be able to satisfy all the listed requirements.

So, who can't take advantage of the new relief? Certainly, those falling into the following categories will not qualify:

a buyer who has previously owned their home;
couples where one of the buyers has previously owned their home;
investment buyers;
companies;
trustees (although there may be some limited exceptions);
commercial partnerships;
buyers of holiday homes;
buyers who have previously owned an inherited property; and
buyers who are buying on behalf of their children or parents.

So, if you're not a genuine first-time buyer, you have no reason to get excited about this new relief. It won't apply to you and you will still have to pay 1% Stamp Duty on the completion of your purchase if the purchase price is more than £125,000 (£150,000 in a "disadvantaged area") and does not exceed £250,000.

Open Space Agreements

22nd March 2010 by Stuart Beeson

On some of the older estates in Milton Keynes you may encounter agreements entered into by the local authorities (Milton Keynes Development Corporation and Milton Keynes Council) with the original developer of the estate. These provide for open (recreational) spaces and their subsequent maintenance. They are expressed to be made pursuant to Section 6 of the Buckinghamshire County Council Act 1971. I have yet to find a copy of the text to this Act. Nevertheless the intention behind Section 6 is clear. A builder receiving an advantageous planning decision is required to give something back to the local authority. In this instance the provision of open spaces.

The existence of these agreements regularly turns up on local searches. Some lawyers think that they may have adverse consequences for householders. In my experience they do not and it is hard to see how they might. Many of these agreements are now almost 30 years old and relate to estates that were built many years ago. The obligations created by them will have been fully performed by the builder. Those open spaces that do exist are now under the control of a local body, generally Milton Keynes Council.

Insofar as a householder may be liable for a breach of one of these agreements, the remedy is damages. All house-owners on the estate are likely to be equally liable. The cost of enforcement against all such owners would be expensive, possibly even uneconomic.

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