Lenders refusing mortgages on new builds with estate fees

Lenders are starting to refuse mortgages to borrowers whose properties have uncapped management charges even if they’re freeholds.

Leasehold charges have been a bone of contention for a long time and are now banned on new builds, but now some developers are writing freehold contracts with uncapped fees which can rise each year.

Santander and Nationwide have already started refusing to lend on such properties and Barclays has said it is reviewing it lending policies.

Estate management fees

Estate management fees are paid by the homeowner for the upkeep of shared amenities and spaces that the local council has adopted.

They are usually collected by management companies that the developer has sold the freehold to.

The fees can be raised every year above the rate of inflation and can be completely out of proportion to the services provided.

Affected

Consumer rights journalist Lauren Smith said: “Labour MP Helen Goodman, who has campaigned on the issue, estimates that 1.3 million households are affected by these estate management fees.

“The covert costs of escalating estate fees mirrors the previous controversy about ground rents on leasehold contracts and the sale of freeholds to investors.

Refuse

“Mortgage lenders including Nationwide started to refuse to lend on properties with onerous leasehold contracts, forcing government reform of the sector.

The government has since announced plans to ban the sale of leaseholds on new build homes.

“Those who currently own leaseholds on private estates will also gain the right to club together to buy the freehold of the entire estate.

But buyers might be unaware of estate management fees.”

Concern

Santander’s concern is that if management costs rise too high the borrower might get into difficulty with repaying the mortgage as well as dealing with the fees.

So the potential scale of future fees is being factored into affordability assessments which could end up with loans being refused.

Nationwide said it had refused some applications and now requires anyone asking for a loan on a property subject to estate fees to get a solicitor to draw up documents to protect themselves and the lender from price increases and possible related difficulties in selling the property on.

Paula Higgins, chief executive of Home Owners Alliance, said: “The problem is that new-build owners don’t even think to ask about this because they are unaware of such fees.
“They are still paying the same amount of council tax, but they have to pay extra money for the upkeep of parks, for example, that can be used by anyone. Consumers have to be made aware of these charges.”