Freehold Flat Without And Underlying Lease

[stoofur]

My girlfriend and I own a purpose built flat which is a block of two flats. We own the freehold of the block and the other flat has a lease. We are at the point of re-mortgaging our flat. We have selected a lender and started to proceed. We now have been told that because we don't have an underlying lease the lender does not want to lend to us.

I have a couple of questions.
1, Should my solicitor have told us that there could be issues getting mortgages on a flat that does not have an underlying lease when we purchased the house?
2, Is it really an issue?
3, Can we do something about getting an underlying lease?
4, Why do lenders not want to lend in this situation?
5, If this is an issue I assume this will effect the saleability of our house. Can we request some kind of compensation?

Thanks for your help everyone.

[buildersmate]

Maybe its me, but I'm a bit confused by your third question.

If your flat is only freehold and the other flat is only leasehold, that must mean the other flat doesn't have a share of the freehold. That makes you solely responsible for things like the buildings insurance on the whole block, I assume.

When leasehold flats purchase the freehold, they more generally do so such that each has a share of the freehold. So to answer your third question first, no, you can't get an underlying lease, because your property is freehold - you'd have to restructure the whole of the arrangement, to split both flats such that they each had a share of the freehold, then both flats could have a lease.

Why is it an issue for your lender? - presumably because it is a less conventional arrangement, so this lender doesn't want to know. Have you enquired of others?

[stoofur]

Thanks for your answer. You are correct we own the whole freehold and the other flat does not have a share. We are responsible for the buildings insurance.

When we got our initial mortgage there was no issue with the fact that there is no underlying lease. To be honest until yesterday I didn't know that there could be an issue.

We can try other lenders and hopefully they will lend. The mortgage we went for offered the best interest rate and no up-front fees. If we are now more limited on the lenders then any prospective buyers of our property in the future will also be more limited. Surely that will make the flat more difficult to sell.

Should my solicitor at the time of my purchasing the flat have made me aware of this potential problem during the conveyancing?

[FredPuli43]

Don't suppose your solicitor ever expected any lender to not understand basic principles ! You can't have an underlying lease on property you own as a freehold, as explained. How long is the lease on the other flat ?

[ladybirder]

It amazes me that some of these banks don't understand the basics of freehold and leasehold. How ridiculous that you are having this problem when you are the freeholder, which I would see as an advantage. There will be banks and building societies that do understand this, Abbey National, now Santander used to be good at that sort of thing, don't know whether they still are. I would use a broker if I were you. Or I suppose there's nothing to stop you writing yourself a lease as you are the freeholder but why you should have to beats me. Won't your current lender do you a better deal?

[stoofur]

Thank you everyone. We believed having the freehold was an advantage too. The other flat has about 150 years left on the lease. Good idea about going back to the same lender. I didn't think of that doh. We are with Santander so ill give them a call.

I'll keep you posted.

[ladybirder]

Ah, so I was right, Santander did come up trumps for you. You have no idea how good that makes me feel stoofur, sad eh! Good luck.