But we will vary the lease to five years and one day, offers Gateway. But will that ACTUALLY satisfy lenders in future?
LKP refers case to Competition and Markets Authority
A teacher and his wife who bought their property off Bovis Homes in 2013 cannot now sell it because the five-year review of aggressive ground rent terms. In addition, the ground rent at £267 is well above the 0.1% limit of sales price beyond which lenders won’t issue mortgages to new buyers.
Paul Burke, who lives in a Bovis Home terraced house in Horfield, Bristol, has just lost his buyer, whose lender NatWest would not issue a mortgage on the property.
“I have since contacted Nationwide, HSBC, Halifax and Barclay who have also refused to lend on a property with five-year reviews to the ground rent,” says Mr Burke, who shares the home with his wife and two-year-old child.
Similar issues are being addressed as part of the mis-selling investigation by the Competition and Markets Authority.
After Bovis built the property, it sold the ground rent to Gateway plc, a property manager and investment company based in Southend, in Essex.
Mr Burke has attempted to buy the freehold and extend the lease at this site, but has been rebuffed by Gateway. The issue may be complicated because although the property appears to be a terraced house, there are two garages on the ground floor, only one of which is covered by Mr Burke’s lease. It is therefore more likely that the structure is, in fact, a flat.
A lease extension could reset the ground rent to zero.
LKP has raised the issue with Greg Fitzgerald, CEO of the Vistry Group which includes Bovis Homes.
It said: “Greg has asked the team that responded to the CMA investigation to pick up this specific issue and to both investigate the concerns and engage directly with Mr Burke, so that the specific details and concerns relating to him as an individual are addressed. The team will keep Greg directly informed.”
A statement provided to LKP by Mikaela Teare, Gateway’s chief administative officer, reads:
“We can only address the elements of your inquiry which concern Gateway.
“We do not consider any income which increases in line with RPI to be either onerous or aggressive. The RPI index is widely used in Government and is in fact the measure upon which pensioner’s income is determined each year. Furthermore as you mention the ground rent is currently £257.00 per annum [we are now informed it is £267pa] and therefore in the region of 0.1% of the value of the property.
“What we find concerning is some lenders will no longer offer mortgage terms on properties with five yearly RPI rent reviews which places their borrowers in a difficult situation. This is a matter which should be taken up with the CML [now UK Finance] as other mortgage lenders will lend on the aforementioned rent reviews and this inconsistency ought to be reviewed to bring clarity to the sector.
“Gateway has always worked with its leaseholders in a constructive manner and in fact agreed a recent proposal put forward by Mr Burke whereby the period between rent reviews increases to overcome this problem for a nil premium.”
There are reports last week of plc housebuilders which sold aggressive ground rents to their customers attempting to put matters right. Redrow has moved from selling freeholds to their leasehold houses from 26x annual ground rents to 16x annual ground rents.
Until this issue is resolved, Mr Burke and his family will not be moving anywhere.
It is highly unlikely that he is the only Bovis Homes customer with a lease with a five-year review term.
In 2014 LKP LKP and Conservative MP Justin Tomlinson revealed Countrywide property management playing games with residents management companies in blocks of flats built by Bovis. This resulted in Countrywide being replaced by Gateway. (Neither outfit is a member of ARMA):
It is concerning that 5 Yr rpi reviews are becoming an issue. My detached house built by bellway has a 5 yrs rpi review clause. Many Bellway properties do.
Absolutely there are many flat owners in the position of paying annual RPI increases on the 5th anniversary and we are with a long lease. Added on top of the cladding crisis I just dont know where to turn next it feels like a noose around my neck.
A ground rent reviewed every 5 years to the RPI is not onerous. It is clear from the lease what the ground rent was, and the formula set out in the lease. The purchaser, their solicitor and their surveyor had two to three months to review the document before committing to it. Arguments it was all written in legalese or that it was all too complicated is weak and undermines the campaign on the more serious issue surrounding leasehold which lies in the management. Ground rent arguments is but a side show except for 10 year doublers. I have seen a case on exactly the same issue on a Bovis lease in Bristol where the lessee was signed off work because of the stress that she could not sell her flat because of a 5-yearly review. The rent in her case was £150 – the depreciation I incur on my new computer in about 12 weeks!
The lender will of course want the ability to move its mortgage rate within a few weeks of a base rate change (particularly if it is an upward movement) and rarely offer mortgages fixed beyond 5 years. Yet the ground rent representing a few percentage points compared to the interest the lessee pays on their mortgage is regarded as a significant outgoing whose terms must be examined in minute detail (and rightly so to avoid a 10 or 15 year doubler) but not when the increase is linked to the RPI and the sum involved is a few hundred pounds a year
The root of the problem is that lenders have, as a result of 10-year doublers, made a knee jerk reaction and imposed limits on ground rents and their review without considering the ramifications. The Road Fund Licence on a typical 4 X 4 vehicle is around that figure and will indeed rise by the RPI every year if not more yet the sale of a car costing a fraction of the price of the flat is not in any way troubled by such a charge. A near hysteria has broken out and some measured thought needs to be applied.
If lenders were given the right to extinguish the ground rent if they became in possession of the property this would allay much of the fear a lender has. Such an exercise would not require the property to be valued if they sought to extinguish the rent and it would be a desktop valuation. If the process was supported with prescribed forms and conducted through the land registry (as is done in Ireland) then the costs would be minimal. Their fear is that if they repossessed the property an onerous ground rent may result in the property being difficult to sell. In the case here the rent may be a tad on the high side and may impinge on the value of the property by say a couple of thousand pounds and this can easily be reflected in the mortgage offer they make to the lessee. It most certainly does not make it un mortgageable and unlike what some campaigners would have us believe of zero value.
The point is the parasitic freeholder should not be in their home in the first place. They need to go out and earn a proper living as my parents said to me when I was 18. I agree other charges beyond ground rent can be a greater problem but also highlight the powerlessness of many leaseholders – service charges, hidden commissions, permission fees and the big one lease extension or freehold purchase cost. Leaseholders up and down the land are tearing their hair out for a variety of reasons, nor least the shambolic approach to building safety.
You must have an expensive computer if it depreciates by £150. One thing that has improved dramatically over the last 40 years, computing, IT and the Internet, while the leasehold system still languishes in the 19th century to the detriment of millions of people, and the international reputation regarding housing policy of England and Wales overseas.
The freeholder’s interest in the property is agreed at the outset following a review of the paperwork by the purchaser and their professional advisors in the two to three months before it is agreed and signed. A parasite enters entirely of its own volition. The ground rent terms are part and parcel of an overall consideration package given to the developer in return for the property. If you see investment income as parasitic and have it outlawed then we would have no pensions, no investment opportunities and no loans.
The point I was trying to illustrate is that a ground rent if it is in the low hundreds should hardly cause a property to become un-mortgageable. I accept if it doubles every 10 years or possibly 15 years there is a problem – but not when it rises in line with inflation or doubles every 25/33 years. The idea that a rent of £350 on a flat worth £250k being such a liability and worry is the result of lenders imposing unrealistic underwriting conditions.
Bizarrely if the ground rent is very large, purchasers and their advisors will then sit up and take notice and ensure the price paid for the property reflects the burden of the rent. So, a very high ground rent is not onerous – so long as it is reflected in the price paid. Take an extreme case – a flat ordinarily worth say £300k is sold with a ground rent of £10,000 per annum indexed linked for £1,000 – the owner of the flat can hardly complain that his ground rent is onerous.
Only a very small number of ground rents double every 10 years and almost all of them sold by large developers over a short period of time. The CMA have put further pressure on those developers in the last week to change those leases and where they have been sold to third parties the developer will have to negotiate and pay the necessary premium.
What has caused an issue and surprised lessees is the collapse in interest rates which will generally increase house prices and the value of pension rights and lower mortgage payments, but for the same reason will increase the cost of a lease extension or buying the freehold. This of course makes buying out an indexed linked ground rent more expensive.
But the root of the problem lies in lessee not being advised as to the cost of extending a lease prior to purchase. This again could be fairly easily addressed.
This hysteria from campaigning groups who are binary and myopic in their campaign have not helped many lessees who hitherto had ground rents a shade on the highish side or linked regularly to the RPI. These lessees now find themselves with problems on their hands being unable to sell to buyers who need mortgages and are left hoping the government will be able to help them out of a problem that has been created by this hysteria. Any changes will be heavily contested by the great estates in London and the insurance industry – so it is likely to be heavily drawn out and may well be watered down.
Cladding problems again have not been helped by knee jerk reactions from lenders and the lack of measured thought on how to address the problem, but in fairness the LKP have tried to put forward the genesis of an idea
Hysteria. Miss selling you mean.
I’ll carry on with the campaign but thanks for your views.
There has been miss selling where 10 year doublers are concerned and the CMA are dealing with it. However, an unjustified fear has broken out over any ground rent over 0.1% in value or reviewed more regularly than every 21 years and this resulted in, for example, the couple in the article being unable to sell their property.
This could quite easily be addressed if a mortgagee could extinguish just the ground rent if they took back possession of the property using a defined capitalisation rate. Then a mortgagee would feel more comfortable about lending where the ground rent is above 0.1% or reviewed more regularly. This would ease the problems faced by a growing number of lessees who now find their hitherto beingn ground rnet becoming toxic
There should be no investment in peoples homes by parasites, many of them based offshore who provide no service or benefit to leaseholders. Pension funds should concentrate on ethical investments, not financial exploitation of captive leaseholders. They are only there because of the magic ingredient, the freehold which provides an income stream. They benefit from half the marriage value, when the leaseholder maintains and improves the property and the freehold interest is v small usually in comparison to the leasehold interest. Marriage value is a fiction in this context, because only one party has invariably added all the value, the leaseholder.
Why should England and Wales still suffer from a defective tenure like long leasehold, when everywhere else has moved on to Commonhold type systems for flats, and genuine freehold for houses ?
Freehold house prices have increased recently due to the stamp duty holiday, as someone in London said a few months ago, “the arse has fallen out of the flats market” due to a variety of reasons, principally fire safety concerns and costs, and leasehold nonsense.
2 flats in my building, grade 2 listed Mill conversion in Yorkshire been for sale for ages (years), we have Right to Manage in our building, and a stamp duty holiday for over a year. Ground rent low (£75 pa) and non increasing, leases over 100 years, service charge about £135 per month for a decent 2 bed flat. So not bad for a leasehold environment. Prices for flats achieved in our building in some cases below the 2007 peak, whereas nearby freehold houses have increased in price and done well.
Leasehold has had it’s day and the flats market will not fully recover unless there are radical changes, the fire safety mess is sorted out (years to resolve) and England and Wales set a firm course for Commonhold. The market has made its decision on leasehold, the tide is only going one way,it will be a footnote in history within 30 years.
Your problem illustrates the problems from constant campaigning by various pressure groups that gains media attention. The resulting articles that get published gives a very negative view about leasehold. Which of course has impinged on your property investments
Rather than the myopic and binary view of the problems from such groups a more measured view would be more productive and achieve change
For example, the pressure groups seeking change have highlighted that ground rents that are indexed linked are somehow the work of the devil and are bad. A more measured view would see that is not the case. What is the problem of course is the 10-year doublers and rather than concentrate on just that problem the campaign groups seek to bring all types of ground rents into the discussion thus weakening the creditability of their argument?
Another example is the proposal that existing ground rents should somehow be capped or indeed abolished. It is confrontational and does not generate constructive debate. The campaigners requests would require the government to pass legislation that somehow tears up contracts entered into by buyers who had professional representation throughout and put the UK on the same footing as other countries in the world who cannot be trusted to uphold contract law. The government would then be drawn into the human court of human rights trying to defend their stance – all the time leaving existing leaseholders in a state of uncertainty – many want to move on with their lives and this is a road block where no one knows when the barriers will be lifted. Is it really a justifiable crusade for the government to get on a horse in armour and charge over to Strasburg and fight the good fight to get a lessees ground rent reduced from £350 to £250 ? – with established contract law ( which on the world stage we are respected for) and a valuation formula refined over the last 28 year being causalities in this battle – I don’t see it
I do believe the government can help lessees by making the landlord bear his own costs in enfranchisement and lease extensions. As a landlord buying a freehold post 1993 came with the possibility of a windfall from lease extensions or enfranchisement so I do think the landlord should bear his own costs and certainly if he acquired the interest post 1993. This would save lessees around £5,000 and would be a significant savings.
Aside from the 10-year doublers very few ground rents have ground rents that impinge significantly on the value of the flat. And those that do have such large ground rents get identified in the conveyance and terms of the sale contract will be amended to reflect the high ground before the lessee contracts to buy – therefore at a stroke neutralising the problem of the rent. If you have a ground rent of say £1,000 a year and £25,000 is taken off the price then the ground rent is no longer a problem.
The campaigning on ground rents has had an impact on those that had slightly highish ground rents. Before all the media storm they would have agreed a modest deduction on the value of their property and moved on – now that can’t do anything as lenders have been frightened into thinking that ground rent of £250 per annum rising in line with the RPI is somehow the devil in disguise and if they were to lend on it, the property and therefore their security would be rendered valueless.
Measured debate is the most powerful way to get reform – and as we have seen in the cladding problems the idea from the LKP has been the genesis of a proposal that seem to be gaining traction
As you highlight ground rents are only one part of the many flaws with leasehold tenure.
There is an example on the NLC of a flat valued at £60,000 in northern England with an accelerating ground rent of £500 per year. The flat is virtually unsellable, because the previous leaseholder had done an informal lease extension, and the current leaseholder was badly advised by their conveyancer and now cannot afford to do a costly formal lease extension to set the ground rent to zero. Many are in that situation or with short leases because of ignorance of the tenure or poor advice.
Other issues include commissions, permission fees, freeholder appointed agents, and costly enfranchisement with not knowing the cost of that. Many are bad contracts (verging on unfair) which leaseholders find difficult to escape from, or find it very difficult to have control over their costs or the management of their building or estate.
There is even a case where the long lease only demised the internal space of a house (not including the walls, floor or roof) so the leaseholder was effectively held hostage by the freeholder if he wanted to enfranchise. Again the property was unsellable because of this. This was not a property with a charity or on a crown estate.
Lenders are more wary of leasehold, not just because of ground rents, but for the other reasons outlined (excluding general fire safety concerns), and are reducing their exposure to it for some buildings
There is poor consumer awareness at point of sale with mis-selling in the recent past (as the Competition and Markets authority have highlighted amongst others), and buyers of new houses and flats have inadequate consumer protection with poor redress (compared to buying most other products and services where buyers can get money back or a replacement product). A recent Welsh government survey has revealed widespread consumer dissatisfaction with leasehold to match English surveys. Those respondents who did not express a view are more than likely to be ignorant of the tenure rather than supportive, having not encountered it’s worst features yet (the Welsh survey is reflected in my building of 32 flats without any prompting from me).
The likely scenario is the slow death of leasehold in England and Wales over the next few decades, so they can then join the majority of developed nations in using the better, more straightforward Commonhold system.
I have no sympathy for a sector that has been hobbled by its own greed and incompetence, and it’s ugly charecteristics are now exposed to the bright light of day. The only sympathy one can rightly have are for the many people suffering.
Leave Stephen alone, he is a human being like you and I. Okay not like you and I exactly, but he is a human being. Okay, not a human being exactly, but he does feel pain (both emotional and physical) like other biological creatures. Some might even questio0n that Stephen can be defined as a biological creature. I say shame on you.
It would appear that you are unable to come back with any critical counterargument to the points I have raised and decide to attempt to poke fun at me instead.
I agree with the points made as far as buyer beware. I bought my flat with no mortgage after a stressful divorce and trusting my lawyer nearly 7 years ago., i am going to go back to said lawyer as this was the first time I had bought leasehold.and stupidly assumed that £580 per annum was the average lease cost on a 2 bed flat in High Wycombe. The flat was 4 years old at that point and the rent 7 years later is £660. My flat is now rendered mortgage-able. I lost my buyer after 6 months from offer. The rent is 0.28% of market value.
Yes I am bitter and twisted about the fact Brigante Properties can now charge me whatever premium they decide they want to vary or extend the lease. They have seen the chance to make money from peoples ignorance of leasehold law, and the possible bill will probably not go through as most of the billionaire freeholders are either part of the government or are contributers to the party funds.
I have been told that Brigante may charge me anything between £2,500 and £30,000 for their legal fees and their chosen premium. I am just a normal working person and this is going to impact my life. They just don’t care and we have to suck it up, sadly. They have worked for or usually inherited their wealth and they are all that matters to them.
I am with @katie Kendrick I will continue to fight even after I have had to cough up to get away from the lease.