Help - Buyer had their Mortgage Withdrawn due to Ground Rent

Rosa_Klebb

Hi, we are in the process of selling our flat in a nice leafy suburb of Leeds.  The flat has been under offer since the start of March at £260k and is a fairly unique proposition since it is a ground floor flat in a secure, modern development, and is one of only very few in the area with a private garden.  Most flats locally do not have any outdoor space, perhaps a small balcony at best.

The buyer really wants the flat because it was the only one locally that met his criteria.  He has a dog so needs the outdoor space.  He is selling his house after a divorce and has a buyer waiting to exchange on his property.  The exchange on his property has so far been delayed because of moving restrictions caused by Covid-19, and also because he is waiting to exchange on our flat.  Moving restrictions have been eased from today though so I’d imaging that his buyers are now keen to complete.  We are chain free as we have already moved out, so our flat is the last link in his small chain. 

Unfortunately at the start of April the buyer has had his mortgage offer pulled because his mortgage company did not like the ground rent clause of our flat which doubles every 25 years (or increases to 0.1% of properties value, whichever is higher).  This is starting from a very low base though.  Current ground rent is a very small £66 per year and in 2028 it will double to £132 per year for the next 25 years, or perhaps £260 a year if the 0.1% clause is invoked.  He still wants the flat and his solicitor has asked us to look into a leasehold variance with the Freeholders to ensure that future increased are in line with RPI. 

We have been looking into this with the freeholders and it seems like the process would take between 4-6 weeks and cost around £1,000 for the initial legal stuff.  Then there could be a potential £2,000 or so in variance fees after this to cover the Freeholders future loss of income (if there is any).

Now we don’t mind doing this if it results in a sale at the agreed price, but at present our buyer is in the situation where he does not have a mortgage offer in place (so is not in a position to buy), and his solicitor has been difficult and obstructive throughout.  We believe for example that it was his solicitors unfavorable ground rent report to the mortgage company that led to the mortgage offer being withdrawn in the first place.  Hence, without a mortgage we don’t even know if he is a serious buyer anymore, or whether there is a realistic chance of his lender re-instating his offer.  His solicitor is being very vague about whether this is a possibility.

In light of the fact that the does not have a mortgage, and the general vagueness from their side when we ask for detailed clarification of their situation, we have asked the buyer, should we go ahead with leasehold variance, to contribute 50% of any fees associated with this.  We are waiting to hear from them.  Does this sound fair though?

We are also in two minds at the moment whether to put the flat back on the market since even if a leasehold variation is approved by the Freeholder, we do not know whether the buyer will be in a position to get his mortgage re-instated.  His mortgage lender is one of THE most picky out there right now.  We have recommended via the agent that our buyer should perhaps look for a more flexible lender, of which there are many out there according to our broker, but it really is his prerogative should he decide he wants to do this, not ours.

Feels like we’re stuck in a big limbo at the moment.  Anyone been in a similar situation and resolved this?  Does anyone have any words of wisdom to offer?

penners324

Most mortgage lenders these days wont accept doubling ground rent clauses. Best option is to get the Deed of Variation to RPI increases done as quickly as possible.

princeofpounds

Just get on with the variation (whether negotiated or through the statutory process). This isn't the fault of your buyer or even the solicitor - he would only have reported the facts and then it is down to the mortgage company to decide based on its policies.

The reluctance of mortgage companies to accept ground rent escalations of this type is not always that logical in practical terms (particularly when the amounts will still be fairly low for a century to come), but it's becoming increasing practice and it's probably not a bad idea to stamp it out for the sake of simplicity if nothing else.

I wouldn't expect the buyer to be happy sharing costs, unless he already feels he is underpaying for the property. This is your problem, not his. He's already got the cost of looking for a new mortgage lender, quite possibly on worse terms assuming that he picked his current one for a reason.

AdrianC

penners324 said:

Most mortgage lenders these days wont accept doubling ground rent clauses.

10yr doublers, absolutely. But 25yr...?

[Deleted User]

AdrianC said:

penners324 said:

Most mortgage lenders these days wont accept doubling ground rent clauses.

10yr doublers, absolutely. But 25yr...?

No one wants to go near it regardless of the term. It's a scam, even if it looks okay superficially you want to steer clear of scams.

Rosa_Klebb

princeofpounds said:

Just get on with the variation (whether negotiated or through the statutory process). This isn't the fault of your buyer or even the solicitor - he would only have reported the facts and then it is down to the mortgage company to decide based on its policies.

The reluctance of mortgage companies to accept ground rent escalations of this type is not always that logical in practical terms (particularly when the amounts will still be fairly low for a century to come), but it's becoming increasing practice and it's probably not a bad idea to stamp it out for the sake of simplicity if nothing else.

I wouldn't expect the buyer to be happy sharing costs, unless he already feels he is underpaying for the property. This is your problem, not his. He's already got the cost of looking for a new mortgage lender, quite possibly on worse terms assuming that he picked his current one for a reason.

Thanks.  The reasons we want the buyer to agree to go 50/50 on the costs is because firstly it is at their request.  They are asking for it to suit the mortgage they have.  There are other mortgage companies out there who don't mind so much and there are no real costs with looking for another provider.  

Secondly it would be us who would be committing to substantial costs upfront at their request but without any guarantee that they will go through with the purchase.  Thirdly it will directly benefit him going forward, not us.  We are quite happy with the doubling every 25 years since the sums involved are tiny in any case.  Fair enough if was 5 or 10 years doubling, then yes I can see how that's a problem, but not 25 years surely?  The maximum ground rent that would be payable between 2028 until 2053 would fall somewhere between £132 and £260 a year - absolute peanuts!

Anyway we are getting on with looking into it.  Apparently though getting these variations can take months and months in which case the sale is probably scuppered in any case.  Anyone had any experience doing one?  Is it also true that it needs to be logged with the Land Registry which can add an additional couple of months before the change is registered?

eidand

Rosa_Klebb said:

princeofpounds said:

Just get on with the variation (whether negotiated or through the statutory process). This isn't the fault of your buyer or even the solicitor - he would only have reported the facts and then it is down to the mortgage company to decide based on its policies.

The reluctance of mortgage companies to accept ground rent escalations of this type is not always that logical in practical terms (particularly when the amounts will still be fairly low for a century to come), but it's becoming increasing practice and it's probably not a bad idea to stamp it out for the sake of simplicity if nothing else.

I wouldn't expect the buyer to be happy sharing costs, unless he already feels he is underpaying for the property. This is your problem, not his. He's already got the cost of looking for a new mortgage lender, quite possibly on worse terms assuming that he picked his current one for a reason.

Thanks.  The reasons we want the buyer to agree to go 50/50 on the costs is because firstly it is at their request.  They are asking for it to suit the mortgage they have.  There are other mortgage companies out there who don't mind so much and there are no real costs with looking for another provider.  

Secondly it would be us who would be committing to substantial costs upfront at their request but without any guarantee that they will go through with the purchase.  Thirdly it will directly benefit him going forward, not us.  We are quite happy with the doubling every 25 years since the sums involved are tiny in any case.  Fair enough if was 5 or 10 years doubling, then yes I can see how that's a problem, but not 25 years surely?  The maximum ground rent that would be payable between 2028 until 2053 would fall somewhere between £132 and £260 a year - absolute peanuts!

Anyway we are getting on with looking into it.  Apparently though getting these variations can take months and months in which case the sale is probably scuppered in any case.  Anyone had any experience doing one?  Is it also true that it needs to be logged with the Land Registry which can add an additional couple of months before the change is registered?

you say at their request, but it sounds like you need to do this anyway, if you want to sell to anyone not just him.
I would just get it done asap tbh.