• Menu
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Before Header

  • Home
  • What is LKP
  • Find everything …
  • Contact
Donate

Leasehold Knowledge Management Logo

Secretariat of the All Party Parliamentary Group on leasehold reform

Mobile Menu

  • Home
  • What is LKP
  • Find everything …
  • Contact
  • Advice
  • News
    • Find everything …
    • About Peverel group
    • APPG
    • ARMA
    • Bellway
    • Benjamin Mire
    • Brixton Hill Court
    • Canary Riverside
    • Charter Quay
    • Chelsea Bridge Wharf
    • Cladding scandal
    • Competition and Markets Authority / OFT
    • Commonhold
    • Communities Select Committee
    • Conveyancing Association
    • Countrywide
    • MHCLG
    • E&J Capital Partners
    • Exit fees
    • FirstPort
    • Fleecehold
    • Forfeiture
    • FPRA
    • Gleeson Homes
    • Ground rent scandal
    • Hanover
    • House managers flat
    • House of Lords
    • Housing associations
    • Informal lease extension
    • Insurance
    • IRPM
    • Jim Fitzpatrick MP
    • John Christodoulou
    • Justin Bates
    • Justin Madders MP
    • Law Commission
    • LEASE
    • Liam Spender
    • Local authority leasehold
    • London Assembly
    • Louie Burns
    • Martin Paine
    • McCarthy and Stone
    • Moskovitz / Gurvits
    • Mulberry Mews
    • National Leasehold Campaign
    • Oakland Court
    • Park Homes
    • Parliament
    • Persimmon
    • Peverel
    • Philip Rainey QC
    • Plantation Wharf
    • Press
    • Property tribunal
    • Prostitutes
    • Quadrangle House
    • Redrow
    • Retirement
    • Richard Davidoff
    • RICS
    • Right To Manage Federation
    • Roger Southam
    • Rooftop development
    • RTM
    • Sean Powell
    • SFO
    • Shared ownership
    • Sinclair Gardens Investments
    • Sir Ed Davey
    • Sir Peter Bottomley
    • St George’s Wharf
    • Subletting
    • Taylor Wimpey
    • Tchenguiz
    • Warwick Estates
    • West India Quay
    • William Waldorf Astor
    • Windrush Court
  • Parliament
  • Accreditation
  • [Custom]
Menu
  • Advice
  • News
      • Find everything …
      • About Peverel group
      • APPG
      • ARMA
      • Bellway
      • Benjamin Mire
      • Brixton Hill Court
      • Canary Riverside
      • Charter Quay
      • Chelsea Bridge Wharf
      • Cladding scandal
      • Competition and Markets Authority / OFT
      • Commonhold
      • Communities Select Committee
      • Conveyancing Association
      • Countrywide
      • MHCLG
      • E&J Capital Partners
      • Exit fees
      • FirstPort
      • Fleecehold
      • Forfeiture
      • FPRA
      • Gleeson Homes
      • Ground rent scandal
      • Hanover
      • House managers flat
      • House of Lords
      • Housing associations
      • Informal lease extension
      • Insurance
      • IRPM
      • Jim Fitzpatrick MP
      • John Christodoulou
      • Justin Bates
      • Justin Madders MP
      • Law Commission
      • LEASE
      • Liam Spender
      • Local authority leasehold
      • London Assembly
      • Louie Burns
      • Martin Paine
      • McCarthy and Stone
      • Moskovitz / Gurvits
      • Mulberry Mews
      • National Leasehold Campaign
      • Oakland Court
      • Park Homes
      • Parliament
      • Persimmon
      • Peverel
      • Philip Rainey QC
      • Plantation Wharf
      • Press
      • Property tribunal
      • Prostitutes
      • Quadrangle House
      • Redrow
      • Retirement
      • Richard Davidoff
      • RICS
      • Right To Manage Federation
      • Roger Southam
      • Rooftop development
      • RTM
      • Sean Powell
      • SFO
      • Shared ownership
      • Sinclair Gardens Investments
      • Sir Ed Davey
      • Sir Peter Bottomley
      • St George’s Wharf
      • Subletting
      • Taylor Wimpey
      • Tchenguiz
      • Warwick Estates
      • West India Quay
      • William Waldorf Astor
      • Windrush Court
  • Parliament
  • Accreditation
You are here: Home / News / UK Finance mortgage lenders doled out cash on dodgy leases, but don’t know how many now can’t sell

UK Finance mortgage lenders doled out cash on dodgy leases, but don’t know how many now can’t sell

January 24, 2019 //  by Sebastian O'Kelly

By Sebastian O’Kelly
UK Finance, told MPs that the leasehold sector “works fairly well”, while drawing a veil on the doling out of loans to dodgy, doubling ground rent properties.

Matthew Jupp, of UK Finance, formerly the Council of Mortgage Lenders, was speaking to the Communities Select Committee on January 14.

But he could not say how many re-sales of leases with doubling ground rents have been turned down for mortgages – about which, LKP is contacted about twice a week. And not all was rosy as, he said, there are “some very poor leasehold terms out there”.

Mr Jupp said: “In extreme cases, if you are talking about something like a ground rent that doubles every 10 years, which we are all very aware of, yes, you are likely to find a restricted market for mortgages.”

Actually, the mortgage lenders were not “very well aware” of predatory ground rent terms, otherwise they would not have complacently handed out money on these flakey property assets.

UK Finance only reacted to the problem after the Leasehold Knowledge Partnership persuaded MPs and mainstream media to take the issue up. Until then, the lenders seemed to think ignorance was bliss, when it came to problematic leasehold items on the mortgage book.

Some of these properties – we think there are around 12,000 doubling new build ones and around 100,000 with onerous terms above 0.1% – are not going to be varied to ground rents aligning with RPI.

So, some lenders are not necessarily going to get their money back, and that will include members of UK Finance.

And while on the subject of figures, it is curious to see UK Finance repeating the 4 million plus figure for leasehold properties, only arrived at after MHCLG co-operated with LKP to provide semi-accurate figures on this far larger than thought sector of the housing market.

Why did a minnow charity like us have to do this? Was assessing the size of the sector all to much for the mortgage lenders whose business is involved in it?

Generally, Mr Jupp’s evidence was an endorsement of the present, unreformed leasehold system.

He did conceded that there are “are additional risks related to leasehold properties”: that is, risks related to lending on them.

These include:

Breaches of lease leading to forfeiture (where the entire asset, including any mortgage, can be lost);

Unpredictable additional costs to the leaseholder – service charges hikes, major works, cladding – and their ability to pay them;

Lease terms that affect valuations, such as ground rent terms.

Leasehold does not need major reform, lenders tell MPs

Inside Housing, news, analysis, and comment about the social housing sector in the UK.

Mr Jupp explained that the UK Finance handbook calls “for the ground rent to be predictable, to be understood as to what the level is going to be, to be set out quite clearly, and to allow that to increase periodically by a reasonable amount. It does not talk about “onerous” as such.”

He added: “There is not a set definition of what lenders mean by “onerous” in those cases. Lenders ask their conveyancers that are involved in that transaction to tell them if they feel there are terms within the leasehold that are unusual and across certain thresholds. That will be for individual lenders on a case-by-case basis.”

These conveyancers, almost always recommended by the developers, appear to have acted as obliging stooges: failing to alert their clients, or the lenders, of clauses in the lease that devalued it.

“In some cases, yes, individual lenders will make a commercial and risk decision not to lend in those particular cases. For example, ground rents that double every 10 years are a very well-known case.

“We recognise that, and we want to see action taken to support those particular leaseholders and see those very bad leasehold terms changed and brought to an end.”

However, when Mr Jupp was asked by Bob Blackman MP how many people had been turned down for loans on doubling ground rent properties, he replied: “We do not collect that data.”

But Mr Jupp reported his “anecdotal” assessment: “We are seeing a lot fewer properties coming through that have onerous or unfair terms and conditions within them.”

As for commonhold, Mr Juppe said:

“One of the biggest difficulties for lenders in assessing commonhold risk is that there is virtually no data out there for England and the UK.

““Assessing the risk within the UK is really, really difficult and that makes lenders cautious, so it is a theoretical concern.

“There are also aspects of the way that commonhold is written into our legislation that lenders have concerns about, in particular what happens when a commonhold winds up, whether that is voluntary or due to insolvency.”

Mr Jupp expressed his concerns about criticisms of the leasehold sector:

“Generally speaking, the leasehold market works well. Lenders are concerned about policies, or indeed language being used, that may make those properties more widely seen as less attractive and, as a result, a two-tier market developing.”

One might have hoped from some words of thanks from UK Finance, given that it seems to have been unaware of the rubbish some of its members were lending on. Alas, there were none.

“We do not have that at the moment [a two-tier market]. There are some cases of people who find it difficult to access mortgages but the reason for that is that there are some very poor leasehold terms out there. The focus should be on rectifying those so that those leaseholders can access mortgage finance. There is not a much more widespread problem than that.”

Related posts:

CML says lenders ‘reviewing loans to reflect concerns about onerous ground rents’ Have lenders refused mortgages on doubling ground rent properties? Barclays turns down mortgage on flat where ground rent doubles every 25 years CML: Will mortgage lenders lend on commonhold? No. Yes. Maybe … er Council of Mortgage Lenders urged to help LKP end forfeiture

Category: Ground rent scandal, Latest News, NewsTag: Matthew Jupp, UK Finance

Latest Tweets

Tweets by @LKPleasehold

Mentions

Anthony Essien (34) APPG (37) ARMA (86) Bellway (30) Benjamin Mire (32) Cladding scandal (70) Clive Betts MP (31) CMA (43) Commonhold (52) Competition and Markets Authority (38) Countryside Properties plc (32) FirstPort (36) Forfeiture (29) Grenfell cladding (55) Ground rents (52) James Brokenshire MP (31) Jim Fitzpatrick (35) Jim Fitzpatrick MP (30) Justin Bates (38) Justin Madders MP (63) Katie Kendrick (36) Law Commission (60) LEASE (66) Leasehold Advisory Service (62) Leasehold houses (32) Long Harbour (45) Martin Boyd (79) McCarthy and Stone (39) National Leasehold Campaign (38) Persimmon (49) Peverel (61) Property tribunal (49) Redrow (29) Retirement (37) Robert Jenrick (33) Roger Southam (47) Sajid Javid (38) Sebastian O’Kelly (55) Sir Peter Bottomley (197) Taylor Wimpey (104) Tchenguiz (33) The Guardian (32) The Times (31) Vincent Tchenguiz (41) Waking watch contracts (40)
Previous Post: « Theresa May also thinks that ‘building owners’ – freeholders – will pay for Grenfell cladding
Next Post: Law Commission seminars on commonhold and RTM launched »

Reader Interactions

Comments

  1. stephen

    January 24, 2019 at 8:26 pm

    Of course if the Net Present Value of the rent was shown next to the premium when a lease is granted both the lender and the purchaser can make a quick informed choice as to the burden that the ground rent imposes on a property. The discount rate used to be set from time to time by the government

    A ground rent of £350 doubling every 10 years for the first 5 anniversaries would have a NPV of £32,288 if the discount rate was set at 5.5%. This figure should be shown directly underneath the premium in box LR7 in the prescribed part of the lease ) with stamp duty being paid on the total consideration This would make it impossible for such terms to slip through

    Equally if the ground rent was £5,000 per annum linked to the RPI with reviews every 10 years would have a NPV of £166,667 if discounted at 3%. If the flat being sold would be worth £300k with a peppercorn rent but is offered at £133,333 with such a high ground rent , then the deal is fair.

    The root of the problem is that the value of the ground rent is not considered properly on purchase (unless very large) and by having its NPV shown professional advisors can make informed choice.

  2. Michael Epstein

    January 27, 2019 at 5:46 pm

    I wonder how many board members of UK Finance have senior roles with the institutions that advanced vast quantities of money to the offshore companies in order to finance their purchases of freehold assets?
    I note some of the offshore investors are beginning to add notes to their accounts stating “If in the event of fairer and cheaper means to enfranchise or extend leaseholds coming into force, their asset values will be devalued and they may have difficulty in repaying loans”

  3. Stephen

    January 27, 2019 at 9:58 pm

    Michael

    You state

    “If in the event of fairer and cheaper means to enfranchise or extend leaseholds coming into force, their asset values will be devalued and they may have difficulty in repaying loans”

    We’re those the exact words used – I find it very surprising although I note you put the words in inverted commas- please can you identify which companies accounts this Ian quoted from

Above Footer

Advising leaseholders. Avoiding disasters.
Stopping forfeiture. Exposing abuses. Urging reform.

We depend on individuals for the majority of our funding.

Support Us and Donate

LKP Managing Agents

Become an LKP Managing Agent

Common Ground
Adam Church
Blocnet property management2

Stay in Touch

To achieve victory in the leasehold game where you are playing against professionals and with rules that they know all too well - stay informed with the LKP newsletter.
Sign Up for Newsletter

Professional Directory

The following advertisements are from firms that seek business from leaseholders.
Click on the logos for company profiles.

Footer

About LKP

  • What is LKP
  • Privacy and data

Categories

  • News
  • Cladding scandal
  • Commonhold
  • Law Commission
  • Fleecehold
  • Parliament
  • Press
  • APPG

Contact

Leasehold Knowledge Partnership
Open Data Institute
5th Floor
Kings Place
London N1 9AG

sok@leaseholdknowledge.com

Copyright © 2022 Leasehold Knowledge Partnership | All rights reserved
Leasehold Knowledge Partnership Limited (company number: 08999652) is a company limited by guarantee that is a registered charity (number: 1162584) with the Charities Commission.
LKP website is hosted at no charge by www.34sp.com
Website by Callia Web