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RICS Denies Short Leasehold Properties will be Valued at Nil
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
A mortgage advisor caused concern yesterday when she suggested that lenders might refuse to lend altogether on leasehold properties that have less than 85 years to run.
Currently, most lenders are cautious of leaseholds with 70 years or less.
Lisa Orme posted on the Property Tribes forum, stating: “Had a bit of a shock today at a mortgage event!
“One of the lenders told us that someone very high up at RICS [Royal Institution of Chartered Surveyors] has alerted lenders that from now on any property with a lease length of less than 85 years will be valued at NIL!!”1
RICS Denies Short Leasehold Properties will be Valued at Nil
She appealed for clarification.
The RICS has now confirmed its approach to valuations of leasehold properties.
Fiona Haggett, UK Valuation Director at RICS, explains: “Recent postings on social media are suggesting that there is confusion and misunderstanding in some quarters regarding a recent change to RICS Valuation – Professional Standards (Red Book) as it relates to the valuation of residential properties for loan security purposes.
“For clarification, RICS has NOT dictated that properties with a remaining lease term of fewer than 85 years should be given a nil value.”
She continues: “In April, RICS changed guidance to valuers around the assumptions that should be made for leasehold residential properties, where the details of the terms of the lease have not been made available to them.
“One of these changes was to raise the assumed remaining lease term from 70 years to 85 years.
“It is important to note that this is merely a valuation assumption and not a mortgage lender rule or an instruction on how to value a property.
“Mortgage lenders will continue to set their own rules around what they consider to be suitable lease length on which to base lending and the market will continue to set the value of a property, which will, in turn, be reflected by valuers.
“The reasoning behind this change is to ensure that valuations where the lease details are unknown will not be adversely affected by any potential that marriage value will be payable in the event of an application to extend the lease term (the point at which this cost becomes a factor is at 80 years unexpired).”
She adds: “We recognise that lender policies have reflected the laid down Red Book assumptions in the past, but from a valuation point of view, we need to ensure that any assumption of remaining lease term is set at a point that enables a full and robust market value assessment to be completed.
“The guidance given to valuers states that the change should not have an impact on the market; it is merely a reflection of what is already a fact.
“As an existing reality, it should not therefore affect lending policies or property values.”1
