"Doubling" Ground Rent

Leebobs

Evening All,

I had to vent my frustration.  We found the perfect property, reasonably priced and our offer was accepted months ago.  Two weeks ago our solicitors advised that the lease had a doubling clause and that the mortgage company was likely to refuse to lend on the property because it was unduly onerous.  The clause in question states that ground rent will be £125 for years 1-50, £250 for years 51-100, £500 for years 101-150 and then £1000 for years 151 - 999 (its a 15 year old property so the mortgage would be paid off in the £125 bracket!). 

To me that did not seem an issue, but today the Nationwide have said they will not lend because of the onerous nature of the doubling ground rent. I'm told it is an underwriters decision, there is no appeal or complaints process and that either the vendor has to buy the Freehold or vary the terms of the lease or the sale will fall through.  [Yes I know I could try to find another lender but I'm porting a mortgage with a few grand in fees.]

This has a very strong whiff of "computer says no" about it.  I don't want to make it the vendors problem (although in reality it probably is) but now I'm likely to lose the perfect property and have to start the whole social distanced house purchasing again which is a royal pain in the !!!!!!.

Does anyone know if there is any way to complain or a way to vary the lease / purchase the Freehold which won't cost a fortune?

Leebobs

NameUnavailable

What type of property is it exactly? You usually can't just 'buy the freehold'. What you can do is buy a lease extension which will eliminate the ground rent completely (if you do it via the statutory route but you will need your vendor to start this process assuming that they have owned the property for at least 2 years).

Maybe your lender will agree if the lease extension process is instigated and they reserve an amount to cover the cost to exend?

Leebobs

It's a house, the vendor has owned it for 10 years or more.  The lease is already 999 years so I'm not sure what you mean by extending it.

NameUnavailable

Leebobs said:

It's a house, the vendor has owned it for 10 years or more.  The lease is already 999 years so I'm not sure what you mean by extending it.

My guess is that the lease was originally 999 years and is now something less? A statutory lease extension will take into account some element of the freeholders loss of ground rent but crucially will mean there's no ground rent going forward. There is a bill in parliament at present looking at leasehold reform including the right to buy out the ground rent but at present the only option is a lease extension or direct negotiation with the freeholders to vary the lease.

As it's a leasehold house there could be a possibility to buy the freehold but that will usually be more expensive.

None of this is going to quickly solve your current problem though.

Slithery

Find a lender who actually knows what they're talking about?

Doubling ground rent is only a problem if it's every 25 years or less, every 50 years puts it at less than inflation so it's a great deal......

daveyjp

+1 to Slithery.  There are other mortgage companies around, find one that understands the basics of inflation.

anselld

Agree this really is not onerous however, for future reference (if it does come to that) you can obtain a copy of the Lease from Land Registry for £7 and it is worth reading prior to committing to Solicitors etc.

You should also try to ascertain if your own Solicitor has put them up to this.  Mortgage companies often refer back to your Solicitor and ask "are there any onerous lease terms" rather than interpreting the Lease themselves.  There is no point approaching another lender if it is really your Solicitor (acting for the lender) who is the problem.

iwb100

This is complete and utter nonsense. We have just sold a house with the same ground rent terms (or similar) and we had two buyers manage to get mortgages no issue with major high street banks. Sadly one ended up pulling out hence two...

So let’s not panic - you absolutely can mortgage. And whilst mortgage companies have tightened up rules usually it is only if doubling occurs every 20 years or less. Or if the actual fee exceeds a certain percentage of total value. What is the house worth?

eddddy

Leebobs said:

The clause in question states that ground rent will be £125 for years 1-50, £250 for years 51-100, £500 for years 101-150 and then £1000 for years 151 - 999 (its a 15 year old property so the mortgage would be paid off in the £125 bracket!). 

Nationwide's guidance suggests that ground rent escalation should be ok...

SECOND HAND PROPERTIES
Unacceptable - advise Issuing Office (Will be declined):
- Unexpired lease term less than 55 years
- Less than 30 years remaining at the end of the mortgage term
- Ground Rent greater than 0.5% of the property value
- Ground Rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years) – acceptable if doubles every 20 years or more
- Ground Rent is compounded RPI
- Ground Rent review period less than or equal to 5 years

Refer to Issuing Office (Valuer will consider any impact on valuation figure and marketability):
- Unexpired lease term is 55 to 85 years
- Ground Rent greater than 0.1% and less than or equal to 0.5% of the property value
- Ground Rent escalation is linked to any indices greater than RPI
- Ground Rent escalation is linked to the value of the building*
- Ground Rent review period is greater than 5 and less than 10 years
- Event clauses exist for normal use e.g. changing the carpet, installing a TV aerial, etc
- Estate Rent Charges greater than £500 p/a (please provide details of what the charges cover)
- Service Charges greater than 0.5% of property value p/a (please provide details of what the charges cover)
- Anything that appears onerous, unusual or out of the ordinary

Acceptable (no requirement to advise Issuing Office):
- Unexpired lease term greater than 85 years
- Ground Rent less than or equal to 0.1% of the property value
- Ground Rent review period greater than or equal to 10 years
- Ground Rent escalation less than or equal to RPI
Link: https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/

But given some of the uncertainty in the property market, Nationwide might have recently got more cautious.

Or is it possible that it's another aspect of the lease / ground rent that's causing a problem - for example, the 0.1% of property value.