The fallout of the ground rent scandal is blighting homes that don’t even have particularly onerous ground rents.
This is causing distortion in the housing market and misery for homeowners who did not believe that the ground rents to their properties would be classed onerous.
LKP has been contacted by a young flat owner whose £265,000 property in Brentwood, in Essex, has £300pa ground rent that doubles every 25 years.
The ground rent – which is for no service whatsoever – is more than the Nationwide’s 0.1 per cent bar on mortgages. So, it would not issue a mortgage.
But in this case the loan for a would-be purchaser was refused by Barclays.
Barclays says that the property is
“not considered acceptable for a mortgage purposes as saleability in the future will become adversely affected over time due to the doubling of the ground rent”.
We are aware of many transactions that have fallen through on leasehold properties where the ground rent terms are not that onerous.
For example, HSBC turned down a mortgage on a flat in Windsor where the ground rent was also £150pa which increased by £150pa every 33 years.
That is annoying and unnecessary, but it is not a ground rent that should affect the leasehold flat’s value.
Many more homeowners are caught up in this ground rent scandal than simply the purchasers of properties from game-playing plc housebuilders such as Taylor Wimpey and Countryside Properties plc.
Related posts:
Ground rent scandal risks becoming full-blown crisis as loans are refused on blighted homes
CML says lenders ‘reviewing loans to reflect concerns about onerous ground rents’
Have lenders refused mortgages on doubling ground rent properties?
Nationwide bans mortgages on doubling ground rent properties
BBC R4 You and Yours now turns to Countryside’s doubling ground rents
Pathetic efforts by plc housebuilders to address ground rent scandal exposed on TV
Dear LKP
Your headline says ground rent doubles every 25 years and in the article you say it was turned down as it doubles every 10 years. which is it?
It is 25 years. Thanks for that
Unfortunately, this is just another demonstration of the sheer stupidity that is endemic amongst mortgage lenders.
It’s the same `groupthink’ that made them decide to exclude thousands of sole practitioner solicitors from their mortgage panels and to insist on the utterly useless CQS membership as a ciondition of joining their legal panel.
A ground rent that doubles every 25 years from a starting piont of £300 can by no measure of common sense be seen as a threat to the value of the property or a deterrent to buyers. As the article says, it’s mildly irritating but no more than that.
In any case, the owner can force the freeholder to sell them the freehold, and as the cost of buying it would be well under £10,000 how can that possibly make the house an unsuitable security?
The boneheads at Barclays who have made this decision are incompetent nincompoops, who should be fired forthwith!
Michael, when I see posts like yours I always want to know where exactly these notions are coming from, have you a professional interest in leasehold?
Ground rent itself is an imposition and a consequence of the sale of properties on a leasehold basis, and is for no service whatsoever – and is not, as some shysters claim, a deferred consideration. £300 every year is serious money, particularly for no service whatsoever, £600 (after 25 years) is even more serious.
Many freeholds cost well in excess of £10,000, as much as £40,000, but any amount in the thousands is, again, serious money, particularly when owning the freehold should have been part of the deal at the outset. You people are not disingenuous, it takes intelligence to be so, you people are something else. Leasehold should be abolished, which part of that do you not understand?.
The reason why Mortgage Lenders do not accept sole practitioners handling mortgage loan funds is they don’t trust their money held by solicitor in sole practice. Law firms with two or more partners must have separate “client account”. operated by the office manager is seen as safer.
The insurance companies won’t compensate lost client funds if the sole practice becomes insolvent..
And yet Ollie, Leaseholders have to trust a property management company that has a negative value of £-35,000,000 to hold over £200,000,000 of service charges, and leaseholders also have to trust a freeholder’s agent to hold development funds who is once again late filing their accounts?
Since nearly all lenders have been daft enough to have firstly granted mortgages on flats with short length unexpired terms and high or otherwise onerous ground rents and now secondly, on the rebound, some refuse mortgages on flats wuth fairly commonplace ground rent arrangements even with an 85 year or more unexpired term, then the simple solution is to obtain a statutory lease extension giving another 90 years on the lease term and reducing the ground rent to a peppercorn. Bingo! Job done! But then I would suggest that wouldn’t I as I’m a Chartered Surveyor and a Lease Extension and Enfranchisement practitioner?
But Fraser, you are also a human being, who being in the trade, knows full well that leasehold is a gigantic scam which should be removed from our statutes?
Abolition of Leasehold and Strict Regulation of Managing, Agents is the only way forward.
Nothing less will suffice.
I urge all those who have not yet signed the online petition to please do so.
Every signature is one step closer to Justice.
Fraser, You are correct. That is a solution that will alleviate the problems in the short term. Looking forward leaseholders could then purchase their freeholds for a nominal sum. The Taylor Wimpey solution is as you know to convert the 10 doubling ground rents to RPI.
This on the very day the Chancellor changed business rate valuations to CPI as RPI was deemed to be too onerous for businesses!
All well and good, but I’ve been quoted 25k to extend my lease and up to 10k legal costs by a solicitor specialising in this area. (Ten year doubling lease). The flat is only worth 95k. I just don’t have 35k lying around, and or world be totally disproportionate to add it to the mortgage.
Sophia, Up to 10k for legal costs is somewhat excessive even in the world of leasehold, but think about how much good you would be doing in shelling that money out, and the 25k to extend your lease. 35k on your mortgage is a small price to pay when your outlay keeps lawyers from the breadline, and helps to maintain the freehold industry.
Satire aside, from time to time we have professionals interjecting on this site – most notably and most frequently Stephen of “Deferred Consideration” fame, these professionals come to defend their indefensible involvement with leasehold, It matters not how they present themselves, how ingenious they are with their arguments (and they are not at all ingenious), all of them (Stephen, Michael Loveridge, and Fraser Maldoom) have a vested interest. The stand out thing about them is their blatant unprincipled self interest, and complete lack of integrity. When you bought your property it should have been complete with freehold – commonhold if an apartment, you should not be living in permanent dread of doubling ground rent and buying freehold or extending lease.
Leasehold should nor exist, which part of that do these professionals not understand?
That you have been quoted £25,000 for the extension does not mean you will end up paying that amount.
So you need a firm that specialises in lease extensions and is a member of ALEP,who for a fixed fee will see the entire process through(including if need be to the Tribunal)
It is vital that you only opt for a statutory 90 year extension.
However much it costs will be added to the value of your flat.
The alternative is to lose your £95,000 asset.in its entirety.
If you have been quoted £25,000 there is a fair chance you will end up paying around £15,000 for the extension.
Hi Sophie. I have just gone through the lease extension process and it is not much fun and it has opened my eyes to the unjustness of the law and the games that the other party will play in order to satisfy their lust and greed for more and more money. The law is inflexible and steeped in favour of the freeholder/investor fraternity and you need as much help as you can get from leaseholder friendly advisers. I have conducted my own research and the cost of extending will just go up and up with every passing year and so it is in your best interests to go down the formal extension route with the help of a leaseholder friendly surveyor/solicitor, fix the valuation date, source the funds, check the new lease terms and conditions carefully and then dump leasehold and try and find a freehold property. That is what I am planning on doing anyway. Alternatively, you can watch and wait and see if the lease extension calculation process is changed to be more favourable towards leaseholders but it is a risk to wait for too long especially with rising property prices. Have a read of some of the articles on this website and check out some of the Tribunal cases on her Leasehold Advisory Website and see for yourself the games that the people like to play with leaseholders. If you cannot finds the funds, or are just disgruntled with the system complain to your MP and highlight the unjustness of the system and see if he/she can help. A friend of mine won her case against the unjustness of the ‘couldn’t careless’ care system and the arrogance of the local authority officer with the help of her MP and saved herself from being ripped off to the tune of thousands of pounds so do enlist your MP’s help if things prove too difficult. Hope that helps. All the best.
Being on the frontline here for you, I ask whether or not you would agree the protection of the term Surveyor in law? This would whittle out the cowboys rather quickly. In too many LVT cases I have read where there is reliance on a Chartered Surveyor or worse still a Project Manager (only use is to pad out the costs), to discover that there was no actual knowledge as to construction of the building. The favoured established cost is the new roof. It will be interesting to see what happens next for new builds when the 10 Yr NHBC warranty runs out, with the sale of the Freehold, will this then open the floodgates for further Tribunal action? Could it be argued that Developers today are intentionally doing shoddy builds, due to flogging off the Freehold to the land, as this means that those coming in behind them need a revenue stream – everyones a winner kerching!
As a leaseholder it is worrying to learn of somewhat arbitrary lending rules. On the other hand, it is false to assert you could “just buy the freehold” of a flat or achieve a reasonable statutory lease extension. The present law is expressly written to fleece.
On balance it must be only good that lenders strangle leasehold more and more. The law must change along the lines of the Madders bill and given his bill is seemingly toast, it is still an open question what Squire Javid is planning to enact other than window dressing.
Yes indeed, Paddy, the more lenders who will not provide mortgages for leasehold properties the better. And the more buyers who will not consider buying leasehold properties the better. Then the glorious capitalist marketplace will kill leasehold altogether, saving Squire Javid the trouble of legislating.
How is it thst High St. Lenders are all regulated & yet if as a Freeeholder/MA you can hastily run up another Mortage (Commercial Mortgage) over the entire site, even allowing the company to go under, as there is little or no regulation. This is wrong & needs to stop. As Lord Denning stated in 1966, the Equity in the building belongs to the Lessee whereas the Equity in the land belongs to the Lessor. How is that as read in LVT case laws that the overall value of the building comprises the valuation process of buying the Freehold?
David, It could prove very interesting if a leaseholder is selling a property for which they have a mortgage with Barclays, but cannot sell because Barclays will not advance a mortgage to a potential buyer of the same property.
Today there is no room for Leasehold. It is only beneficial for Freeholders/MA’s. The Freehold should be part of the transaction at first purchase. The Buildings Ins should be in favour of the Lessee & not be used so as to raise further capital by the opposition by way of Commercial Mortgages. How many of these Freeholders/MA’s have gone under leaving the Charges in place? There has been too much emphasis on allowing this mindset to become the accepted ‘norm’. I appreciate that for some the running of an RTM maybe daunting, however all that is needed is an explanation in laymen terms as to what constitutes being a Director, including the responsibilities. RTM should always be the 1st option with Flats/Apartments then extend the Lease. This way buying the Freehold is cheaper. With Hse’s there is no excuse for anything less than Absolute Freehold Title.
Just listened to the LEASE webinar (held yesterday apparently) advising the public on the Call for Evidence about regulating agents.
Not quite what I was expecting. The first 17 minutes of an hour’s presentation were used up explaining at length the fact that there is a current call for evidence. Rather a large chunk I felt.
Given that folk were advised to acquire a copy of the call for evidence, what followed was a detailed outline, with slides and voice-over, that worked through the content of the call for evidence document itself, which I would hazard a guess would be quicker to read in the original, but that’s just me. It is my style to download and read something for myself.
I did not know that the reason for the DCLG’s call for action on agents was Lease’s sponsored survey in 2016? Nothing else is mentioned as to cause prior to the Squire’s speech to ARMA in October.
Comforting to learn from the webinar that Lease “fully supports” regulation of managing agents. Where would we be without Lease standing guard over leaseholders’ rights?
The presentation ended. Questions had been invited and it was mentioned there were a lot so presumably the presenters needed to pick good samples.
I thought this slot would focus on suggestions for reform, with perhaps Lease outlining and expanding on some of its own ideas.
Instead I found the questions as selected for ‘air’ a bit off topic – “How can I exercise RTM” etc, and thus the answers such as they were less than illuminating as to ideas for regulating agents. I guess this is because being told the legal theory but knowing the operational practice of leasehold, I live in hope of someone guiding me through the big gap.
Somebody did throw refer to Scotland’s system but the answer merely said along the lines that Scotland has a different system without leasehold so no direct comparison was possible. Unusual elephant in room in that answer, I felt.
I came away with one gem: we’ll have to wait and see what comes from the call for evidence.
On that point, I emailed my erudite response to DCLG weeks ago by attachment. No automated or other confirmation came back of receipt. Is this normal?
Did I hear “‘STRICT REGULATION OF MANAGING AGENTS”?
We have a lease and our ground rent increased over 4 times at review from £50.00 pa to £210.00 pa. The lease allows for a Chartered Surveyor to make a valuation of the blocks value. People need to be aware of terms like this.
You make a very interesting point.Whilst many leases have a provision for an increase in ground rent in line with RPI (or as we now know doubling) some of the older ones require a ground rent valuation to be conducted by an independent RICS appointed surveyor at cost to the freeholder..
I myself, have experienced the antics of E&M who not only tried to back date the ground rent increase to the wrong year, but also “claimed” that a valuation had been carried out, when In fact they had not carried it out, as was subsequently proved in a court action for which E&M were represented by J.B Leitch.
Never assume!.Always check the lease.
Hello Michael, what was the result of this court case ? We also went through antics with the same company as you. We felt angry as one of only a few placeholders who disputed it without success.
I mean leaseholders who are resident in the estate.
I lost, because the final case presented by J.B Leitch was as to the “applicability of the ground rent review” that was finally carried out. By accepting that it did apply, it proved the previous efforts(non efforts) did not.
JB.Leitch’s representative was stunned when I told the judge I accepted it and would settle. Their real goal win or lose was to bankrupt me.
Suddenly, they had nowhere to go and no further hold on me.. I vowed that I would dedicate myself (free of threats) to exposing the practices of Peverel/Firstport/E&M and making sure that for every pound they cost me I would cost them £100.
Though defeated.,I learned much from the experience, and thus far for Peverel/Firstport E&M it has proved to be a very expensive victory.
The next time they took me to court(over service charges) I stood firm and despite enormous pressure exerted on me, I did not give an inch and Firstport/Peverel backed down days before the hearing paying all the legal costs.
Master E
You are my kinda comrade.
Better to die on your feet than live on your knees.
Dear Kim
I agree with you. The only way to deal with these companies is abolition of leasehold and statutory regulation and registration of managing agents.
Dear Michael
Thanks for the detail it was good to hear you won the second time.
Could LKP do a new article on E&M, Firstport and Peverel ?
Dear S Mc Donald
If we continue to stand and fight together then we will achieve our objective.
“NUF” RESPECT TO MASTER EPSTEIN.
The Council of Mortgage Lenders are partly responsible for keeping the leasehold system in England and Wales for Developers to exploit.
Also new houses and flats are advertised as “New Property for Sale” .
You never see any Developers advertising 125 years Leases for Sale with no undisclosed terms including onerous annual ground rent doubling every 10-25 years plus
paying service charge for maintaining the freeholders flat plus
fully insuring insuring freeholders property and
you accept accepting compulsory forfeiture at end of lease.
Health Warning : We are the honest developers and withing 3 years , we will sell the freehold title to next freeholder who may try to exploit you.