Have lenders refused mortgages on doubling ground rent properties?
Reports from estate agents and anguished home owners report that the Nationwide building society is refusing mortgages on properties with onerous ground rents.
Similarly, the Council of Mortgage Lenders has raised its concerns with the BBC. Ground rents that may impact on the future affordability of the loans should be reported to lenders.
It stated earlier this month: “Known future ground rent increases would need to be taken into account by lenders in their affordability assessments.”
LKP specifically raised the issue with Nationwide of doubling ground rents – doubling every 10 years with Taylor Wimpey between 2007-2011.
Other developers such as Galliard Homes and Bovis also have doubling ground rents set at every 25 years.
Nationwide replied: “Ground rents, including modern ground rents, at a reasonable level, consistent with local conditions, are acceptable to the society.
“There is no objection to a lease that contains a periodic increase of the ground rent provided the amount of the increase is fixed or readily established and is reasonable.
“If, however, it is considered that there is any escalation in the ground rent, or unreasonable service charges, with particular reference to new build being marketed for the first time now or in the future, that will materially affect the value of the property, it must be reported as unsuitable security.”
The Council of Mortgage Lenders provided a statement to the BBC Radio 4 You and Yours consumer programme earlier this month.
It reads in full: “Recent rule changes in the mortgage market over the past couple of years have made it a requirement for lenders to take account of all known future changes to a borrower’s income and expenditure that could affect the affordability of their mortgage.
“Known future ground rent increases would therefore need to be taken into account by lenders in their affordability assessments.
“It is worth noting, too, that a lender’s risk might also be increased if ground rent values are disputed in the future and the borrower does not pay while in dispute, as in such situations the lease could potentially be forfeited and the lender’s security put at risk.
“Clearly it is therefore helpful to both the owners of leasehold properties and mortgage lenders if ground rent increases are set at levels that will not materially change mortgage affordability in the future and therefore create potential distortions in the availability of mortgage finance on affected properties.”
Please sign this petition calling for an end to leasehold houses: https://you.38degrees.org.uk/petitions/leasehold-new-house-builds
Has anyone asked if leasehold houses would be covered by the Flood Re insurance scheme?
It occurs to me that leasehold flats have been excluded from the scheme on the grounds that they are deemed to be a commercial entity, so could the same be true of houses bought on leasehold?
That shatters the illusion that leaseholders are home owners then, we are tenants and the government needs to clarify our position and strengthen our rights. That’s what happens in a democracy right?
Hi Leaseholder. As ‘another leaseholder’ going through an arduous and tiresome lease extension process and having read a few tribunal cases, I can confirm that we are seen and referred to as ‘tenants’ by the judges, not home owners!
And the Freeholder’s are considered to be our Landlords!
Hmm … The leasehold system stinks, and I believe lease agreements are a form of entrapment as most leaseholders do not have a clue what they are letting themselves in for when they sign up.
Perhaps lease agreements should be renamed ‘rental agreements’ or ‘not so assured tenancy agreements’ because in reality that is what they are. At least a change in name would alert future leaseholders to the need to get fully informed before making the leap into the murky world of leasehold properties.
There you go … my thought for the day! Oh yeah, conversion of leasehold properties to commonhold or a share of the freehold at the freeholder’s expense as suggested by the head of the Institute of Chartered Builders in one of the other articles would go a long way to solving many if not all of the problems leaseholders face.
It seems odd that you use the term Lease Agreement I bought a Long Residential Building Lease being a Contract made by Deed signed under Seal. What are people signing for today? I’ve actually stood in the court room and shouted at the Judge this very point. He seemed surprised until he looked at the Lease – and agreed with me. These are very strange times..
Hi B. I am not sure what people are signing up to today but my lease is simply titled ‘Lease’ from the 1960s made between the builder and the first leaseholder. The title was transferred to the new leaseholders at every point of sale thereafter. It seems the business of selling off the freeholds is not new as the builder sold it onto a chartered surveyor who seems to have used it as a future pension pot, i.e. once the leaseholders started to realise the need to extend the leases he was onto a nice little earner. He has passed on but his family retains the freehold and can still look forward to some nice little earners as some of us have yet to extend the leases and it is now getting to be very expensive to the point of almost unaffordable. I was offered initially the option of an informal deal that contained a staggering ground rent structure that almost made my eyes pop out and made me realise that I cannot trust the freeholder or his agent to act with honour or integrity and so I have had to get to grips with the subject and commission my own independent valuer. There you go, hope that helps.
All properties build after a certain date (2009 seems to ring a bell) are excluded from Flood re:
The assumption is that developers were not meant to be building on flood risk areas after this date.
If this is the case, then would the Lessee have a redress issue via a Blight Notice as ultimately it is the Planning Dept who allows the build process? Just musing here…