mortgage refused to ground rent increases

[birdladyfromhomealone]

Our mortgage provider has rejected our application due to ground rent.
The freeholder charges x per year with a double increase each decade.
so for instance 1k for 10years then 2k , 4K, 8k etc
This works out at about 3% per year.
Our mortgage provider says the freeholder should only charge double every 20 years not 10.
Are there any mortgage companies that won't stipulate this?
Who pays the freeholder to change the lease Vendor or buyer?

3% is quite high but we don’t know the property value. I work for a mortgage company who wouldn’t consider ground rent and service charge totalling more than 1.5% of the property value and we would also consider the current arrangement of it increasing in 10 years acceptable.
Have you tried a mortgage broker as they will be able to help you find a lender willing to accept?
I have seen cases where the freeholder has agreed to amend the lease terms but it can be time consuming and you can ask your solicitor to make contact with them. Each freeholder is different though.

Sorry that should say we would consider it unacceptable

Is it a new build?
I know lenders are doing to this to try to stamp out ridiculous ground rent terms.

The issue is resaleability. You might only plan to live there 10 years, so not see an increase while you’re there, but you might struggle to sell it later down the line when the ground rent is higher.

Is it really £1k -that’s very high at the outset.

Lenders are increasingly looking at lease terms as new leases are now often unreasonable.

My lease is 160 years at £50pa for the entire term.

A neighbour extended her lease and signed up to new terms including £250 per year doubled every 5 years. Her ground now stands at £2k and will double in the next three years.

You may well find a lender but proceed with caution as you may find it hard to sell further down the line... be careful.

Are you buying or trying to remortgage a property you already own? If it's the latter you should ask the solicitor who acted for you on the purchase what they did to explain the ground rent increases to you.

You have had a lucky escape. Don’t even think of buying a property with such onerous conditions on the ground rent.

speak to a solicitor about serving notice under section 42 of the leasehold reform housing and urban development act 1993. You will have to pay a premium, and some legal costs, but you will end up with a new lease for 90 years longer than your current lease and no ground rent.

Make sure the solicitors do a lot of 1993 Act work though, as it’s easy to get it wrong.

Fridays - there’s been a lot of this in the news - people just don’t know what they’re buying as it’s either not explained or, in the case of new builds, they offer a service which involves the developer’s solicitor.

A new neighbour bought their first flat and proudly announced their solicitor had explained it had a peppercorn ground rent. It’s actually £100 🤨

If OP is still looking for flats, consider an older property with a long lease (or share of freehold) they are often much better. I had an old flat with low lease - I renegotiated and bought the headlease with a peppercorn ground rent. Few years later I found myself needing to sell and it was very marketable, the neighbour who ended up with a lease with doubling ground rent has been unsucceful in selling and her rental income now just goes into servicing the ground rent and ever increasing service charge.

Avoid.

If you are having problems buying your problems will increase when you come to sell.

I think you have had a lucky escape.

£1000 per annum ground rent and then doubling every 10 years is extortionate

What the heck?

A 100% increase after 10 years is an increase of 10% per year on the first year's charge, not 3%.

(Or if you consider it as a year-on-year increase, it's a 7.2% increase on each previous year's charge every single year of the house's life.)

The house won't be saleable. And there's nothing to justify this increase: it's pure gouging.

I have a doubling ground rent, £200, doubling every 33 years. Even then I thought carefully before agreeing and stacked it up against all other costs involved. No way would I agree to £1000, doubling every ten years. After 50 years the ground rent will be £32,000 per year!

Lucky escape!

So when the property is 60 years old, the ground rent will be £32k.
I think these sort of arrangements should be made illegal. If you are thinking of buying the property, don't, even though 60 years is a long time, it is enough to make the house increasingly unsellable.

Your lender is doing you a favour OP. Walk away.

Woah! Lucky escape! You would really struggle to sell that house again, even if you did get a mortgage

If ground rent is over £250pa outside of London and £1k pa within London, the lease falls within the Housing Act 1988 and is an Assured Shorthold Tenancy for the purposes of the act. In the event of breach of the lease in most leases (in certain circumstances), the Landlord can apply to the court for forfeiture BUT the court has the power to grant relief against forfeiture i.e. the power to prevent the lease being ended.

If a lease is an AST for the purposes of the HA1988, the court has NO power to grant relief and HAS to order that the lease is forfeited if certain conditions are met e.g. 3 months' rent outstanding for 3 months.

So for some lenders, this is not acceptable mortgage security, because if you breach the lease and the landlord applies to the court for forfeiture, provided the conditions are met then the court will have no option but to end the lease. So the lender would lose their money and, as you'd then be homeless as well, it's unlikely you'd have the money to pay off what's left on your mortgage.

This didn't used to be an issue when long leaseholds were granted for peppercorn or low rents, but as landlords have got greedy this is an area of legislation which is is desperate need of review, as so many more leases are falling within the Act (and so many people don't realise).

Also, that rent is ridiculous.

If you follow the statutory lease extension procedure then the rent will reduce to a peppercorn and you will get 90 years added to the residue of the lease. You would be responsible for paying your costs and the landlord's costs (including solicitors' and valuer's fees) as well as any premium chargeable for the extension. This can be extremely costly so isn't an ideal solution by any means.

My lovely cousin has just had this same problem.

The seller has renegotiated the ground rent to stop it doubling every 10 years I think it was. Am not sure what it increases by now or the terms.

But despite having this contract with the land owners it has still made it difficult to buy. It's delayed exchange by about 6 weeks so far and they were on the verge of the chain collapsing.

The bank they are taking the mortgage with have had to see the paperwork and cousins solicitor has had to do additional work to prove that the agreement with the land owner is legal, enforcable and has a clause in it that protects the banks loan. If they couldn't find that it would mean that my cousin would have had to buy an indemnity to cover, but such indemnities don't exist according to the solicitor.

I think it will become a big issue. Cousins new house in on a new build estate down the road from me. There must be 500 properties on that estate. I know of at least 1 other that has had similar problems.

There have been massive issues with these....
www.which.co.uk/consumer-rights/advice/whats-the-problem-with-doubling-ground-rent-clauses-in-leaseholds

As other have said, lucky escape. I wouldn't touch one of these leases with a bargepole.

OP, I'm sorry, this must have been difficult to read.

It's all very well us merrily saying "Don't do it, lucky escape," but pretty unpleasant for you if you're either losing a purchase you're halfway into, or remortgaging a property you already own.

I am sorry to say that if I had been considering a leasehold property, the level ground rent and service charge, plus any built-in increases, is the very first thing I would have asked about. If I had then discovered what you have outlined, I wouldn't have even bothered with a viewing, let alone proceeding to buy.

It's not 3%. Doubling every 20 years is about 3.5%, every 10 is over 7% and very high. This should be rejected as it's not linked to any reasonable level of inflation.

Interesting piece in the FT about developer lease conditions today

www.ft.com/content/c7ab68c0-a614-11e8-8ecf-a7ae1beff35b