Council of Mortgage Lenders

david32

Our buyers are asking for the lease to be amended for their mortgage lender so that it states they (HSBC) get 28 days notice if the Lessor is going to issue proceedings for unpaid ground rent. Is this a requirement of the Council of Mortgage Lenders? Should conveyancing solicitors know about this and have amended this earlier when the lease was amended?

They also want it capped when the lease states it will never go about two thirds (less £5) of the rateable value, surely that is a reasonable cap (it is also only increased by £50 every 25 years)

Are the buyers or their mortgage lender being unreasonable?

Thanks for any info regarding this

da_rule

This is from the handbook:

5.14.9 We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us (see part 2).

Part 2 for HSBC doesn’t vary this response except in relation to BTL mortgages.

There’s seemingly nothing in there about 28 days notice.

david32

Yeah I couldn't find anything in handbook...surely HSBC won't refuse mortgage if lease isn't amended?
Don't know if solicitor just trying to delay things and make money

eddddy

david32 wrote: »

Our buyers are asking for the lease to be amended for their mortgage lender so that it states they (HSBC) get 28 days notice if the Lessor is going to issue proceedings for unpaid ground rent. Is this a requirement of the Council of Mortgage Lenders? Should conveyancing solicitors know about this and have amended this earlier when the lease was amended?

Is the ground rent £250 or more - or £1000 in London - or capable of getting to that level in future?

This seems to be something that solicitors and lenders have recently started to get concerned about.

It's easier for freeholders to forfeit a lease for non-payment of ground rent, in those cases.

See: https://www.mishcon.com/news/publications/real_insights_-_property_update_05_2017/assured_tenancy_traps__the_unexpected_ast_05_2017

david32 wrote: »

They also want it capped when the lease states it will never go about two thirds (less £5) of the rateable value, surely that is a reasonable cap (it is also only increased by £50 every 25 years)

Is your property a house or a flat? If it's a house, I think 2/3 rateable value limit might impact the cost of enfranchisement (buying the freehold).

david32 wrote: »

Are the buyers or their mortgage lender being unreasonable?

If the lender won't lend, there's not much you can do.


You can ask your freeholder if they would consider doing a lease variation - but it would put the freeholder in a worse position.

So their answer is likely to either be "no" or "only if you pay us a chunk of cash".

One way of getting the ground rent reduced to zero would be doing a statutory lease extension - but that would also cost a chunk of cash, and take a few months.

eddddy

david32 wrote: »

Don't know if solicitor just trying to delay things and make money

Most people pay their conveyancing solicitor a fixed fee, so there's no benefit in delaying.

david32

It is currently £450 per annum until 2039...when it can go up by an increment of £50. I think it is pretty low for area (south east). The law hasn't been implemented that it shouldn't be over 0.1% of value...don't think law can be applied retrospectively if is made law.
Thanks for all responses

david32

Looks like if law is implemented will only apply to new leases.

Like you say though up to lender hmmm...

eddddy

david32 wrote: »

It is currently £450 per annum until 2039...when it can go up by an increment of £50.

That's high. And since it's over £250 (and outside London), that's probably one of the problems for the mortgage lender.


HSBC are a bit vague, they say:

HSBC UK Bank plc
We will not provide residential or Buy to Let Mortgages in the following circumstances:
• The property is subject to an onerous Lease clause regarding an excessive or unreasonably escalating ground rent.

Link: https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/

Some other lenders mention the £250 limit specifically, for example:

Britannia, a trading name of The Co-operative Bank plc

Where ground rent provisions cause (or, during the term of the mortgage, are likely to cause) the lease to be treated as an assured shorthold tenancy under the Housing Act 1988, this need not be reported to us if either:
(i) arrangements are made for the lease to be formally varied to restrict the ground rent below the statutory level (currently, an annual ground rent of more than £250 (or over £1,000 for properties in London)); or
(ii) a suitable indemnity policy (which complies with our requirements as set out in section 9 (Indemnity Insurance)) is put in place to protect us.

Market Harborough Building Society

a. Any ground rent at the start of the mortgage term should not exceed annually £250 outside of London or a £1,000 inside London. If this is the case you must immediately contact the Society. We will advise you if our mortgage offer remains valid.

A few lenders mention that an Indemnity Policy might be accptable - so that may be worth investigating.