Ground Rent over £250 a year

ChloeManoey

I'm buying a leasehold flat and was hoping to be ready to exchange in about 3 weeks time. 

Today my solicitor has informed me that my mortgage lender (Santander) have said they are "not content" with the ground rent. 

The ground rent is £150 a year, until 2035. 
It then goes up to £250 a year, for the next 25 years. My mortgage term is 35 years. 

The problem is that when ground rent is £250 a year or more, there becomes an assured shorthold tenancy (yes, really, for definite!). With this, comes the power for the freeholder to evict you if you don't pay your ground rent. This is understandably a worry for Santander. 

My solicitor is almost entirely useless and is leaving the firm tomorrow (possibly to start a new career as a clown). 

I've seen previous threads on here with no conclusion or solution to this, but they are a few years old now. 

What are my options here? And how likely are they to succeed?!

Icecold_2

Hi 
my son and daughter in law are in the process of buying a flat with the same issue, they also have the rent increasing towards the end of their mortgage term.
Their mortgage is with the Nationwide and they have agreed to accept an indemnity policy, has this been suggested by your solicitor?
Having done a bit of research it seems the law in this is due to be changed and the loophole removed, however, with Brexit and Covid this has been delayed 

ChloeManoey

Icecold_2 said:

Hi 
my son and daughter in law are in the process of buying a flat with the same issue, they also have the rent increasing towards the end of their mortgage term.
Their mortgage is with the Nationwide and they have agreed to accept an indemnity policy, has this been suggested by your solicitor?
Having done a bit of research it seems the law in this is due to be changed and the loophole removed, however, with Brexit and Covid this has been delayed 

Oh that's interesting, and good to hear they are looking at changing it. I will definitely look into an indemnity policy, thank you. Has your son found a suitable one? Is it costly?

eddddy

Some mortgage lenders accept indemnity insurance. It would have to be arranged by a solicitor (yours or the sellers). Here's a bit of info: https://cli.co.uk/news/1059

But that insurance only protects the mortgage lender, it doesn't protect you. So if your lease is forfeited, you won't get any compensation - so it's still a risk. And you might find the flat difficult to re-sell for the same reason - unless/until the law gets reformed.

And Santander seem to be saying that they'll accept indemnity insurance:

Santander UK plc
Ground Rents
1. 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:

a. the Lease can be varied to restrict the ground rent below the statutory level; or

b. a suitable indemnity policy is put in place to protect us (but please notify us about the policy in accordance with the Indemnity Insurance instructions)

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

jaxkesa

I bought a flat with £250 ground rent and have never had any problems such as this. Are you sure it isn't over £250 where this applies?

macman

Ask your freeholder if they will accept a revised ground rent of £249?

Icecold_2

ChloeManoey said:

Oh that's interesting, and good to hear they are looking at changing it. I will definitely look into an indemnity policy, thank you. Has your son found a suitable one? Is it costly?

It was £60-£70 ish and the solicitor insisted the vendors provided it, the policy was found by one of the solicitors, unsure which one 

ChloeManoey

Amazing, thank you all ever so much. I will look into the indemnity insurance as it seems Santander will accept this. Fingers crossed!! 

Icecold_2

ChloeManoey said:

Amazing, thank you all ever so much. I will look into the indemnity insurance as it seems Santander will accept this. Fingers crossed!! 

Good luck!!

jameshampshire

Are there many lenders who will accept Indemnity Insurance for above £250 Ground Rent.

NameUnavailable

Assured tenancy issue only applies if the GR is over £250 (£1K in London). So you would be safe from that for a while, however lenders are still nervous about any property where the GR increases like this because it could affect the saleability/value in the future.