Mortgage declined twice because of ground rent on flat

contento123

I’ve applied for a mortgage on a flat, first with Santander who declined the mortgage based on the fact that they thought the ground rent was too high, so 0.2% of the value of the property (£155,000) which works out at £310 per annum. Santander’s policy is no more than 0.1%. So we went to NatWest and applied with them and stated what the ground rent would be up front, valuation was done on Monday (02/11/20), and now my broker has told me that the surveyor has told NatWest that the 0.2% ground rent is still too high. So they’ve again rejected it. My broker has managed to get the ground rent put down to £250 per annum, and put in an appeal with NatWest, so fingers crossed the surveyor accepts this as reasonable and then gives the ok for NatWest to go ahead. I’m baffled by the whole situation, I know ground rents are an issue for lenders but 0.2% of the value of the property seems reasonable, especially as 3 other flats in that complex have managed to sell. The annoying thing is Santander actually gave me the mortgage but rejected the flat. 

Two questions: 
Is this normal for flats to be rejected on ground rents? Does it just depend on what the surveyor thinks? 

And what are the chances of the appeal being accepted now the ground rent has been lowered? 

Much thanks, from a very stressed buyer. 

MovingForwards

How much does the ground rent go up by and how frequently?

contento123

I had a detailed look through the lease and the ground rent goes up every 10 years in line with RPI. Their method is base ground rent x RPI in 10 years time, divided by base RPI. I did check to see if it doubles every 10 or 25 but it doesn’t. 

It would seem lenders/surveyors are being extra picky.  

Thrugelmir

Much depends on the rate of RPI. 

hannah021

Quite pleased to know that lenders are playing their role to keep ground rents down.

ChloeManoey

To be honest, your broker should not have been placing you with lenders that you clearly don't meet the criteria for. It's rather a waste of time. 

This is only one issue with ground rents. Anything over £250pa (outside London) would also be refused by lenders (as it becomes an AST). Increases every 10 years (whether doubling or with RPI) are going to be too frequent for most lenders as well. 

In answer to your questions, yes it is very normal for lenders to be unhappy with ground rents for many reasons, not just because they are over 0.1% of the property value. 

0.1% of a £155k property is £155 a year. So it's still far too high and does not meet the criteria the lender has given you. 

contento123

ChloeManoey said:

To be honest, your broker should not have been placing you with lenders that you clearly don't meet the criteria for. It's rather a waste of time. 

This is only one issue with ground rents. Anything over £250pa (outside London) would also be refused by lenders (as it becomes an AST). Increases every 10 years (whether doubling or with RPI) are going to be too frequent for most lenders as well. 

In answer to your questions, yes it is very normal for lenders to be unhappy with ground rents for many reasons, not just because they are over 0.1% of the property value. 

0.1% of a £155k property is £155 a year. So it's still far too high and does not meet the criteria the lender has given you. 

Thanks Chloe. It’s only Santander that has a policy of 0.1%, NatWest don’t have any published policy on what their maximum ground rent is, but I think it still has to be reasonable, which is maybe why in this case they’ve left it to the discretion of the surveyor. Probably shouldn’t hold out too much hope in them accepting £250 then? 

I’m happy that lenders are doing their part to keep ground rents down, it’s just frustrating as the flat is perfect and it’s the buyer who suffers because of the landlord’s greediness. I really do think lenders are shooting themselves in the foot as flats with higher grounds rents are harder to sell anyway, for the sake of a few hundred pounds extra in 10 years time? It seems ridiculous.  

ChloeManoey

contento123 said:

ChloeManoey said:

To be honest, your broker should not have been placing you with lenders that you clearly don't meet the criteria for. It's rather a waste of time. 

This is only one issue with ground rents. Anything over £250pa (outside London) would also be refused by lenders (as it becomes an AST). Increases every 10 years (whether doubling or with RPI) are going to be too frequent for most lenders as well. 

In answer to your questions, yes it is very normal for lenders to be unhappy with ground rents for many reasons, not just because they are over 0.1% of the property value. 

0.1% of a £155k property is £155 a year. So it's still far too high and does not meet the criteria the lender has given you. 

Thanks Chloe. It’s only Santander that has a policy of 0.1%, NatWest don’t have any published policy on what their maximum ground rent is, but I think it still has to be reasonable, which is maybe why in this case they’ve left it to the discretion of the surveyor. Probably shouldn’t hold out too much hope in them accepting £250 then? 

I’m happy that lenders are doing their part to keep ground rents down, it’s just frustrating as the flat is perfect and it’s the buyer who suffers because of the landlord’s greediness. I really do think lenders are shooting themselves in the foot as flats with higher grounds rents are harder to sell anyway, for the sake of a few hundred pounds extra in 10 years time? It seems ridiculous.  

I know, it really is so difficult. I've recently purchase a leasehold flat with ground rent so I've had a good old read about it! 

If the ground rent is over £250pa, an assured shorthold tenancy is created (automatically, as per the 1988 I think, Housing Act). This being in place, means that the freeholder has an easy route to evict/take back the property should you not pay that ground rent. This is what the lender worries about. Because not only does the property get taken back from you, they lost their mortgage money too. Anything under £250, it's a much more complicated route for the freeholder to evict you. 

If the ground rent will exceed £250pa at any point during the lifetime of the mortgage, then they won't like it  

The lender is also thinking... if you don't pay your mortgage and they have to repossess and sell your flat to get their money back, how easy is that going to be for them? They like it easy! 

contento123

I’ve just read up on the £250 ground rent issue, which I had ABSOLUTELY no idea about. Thank you for bringing it to my attention. 

I have no idea if my mortgage advisor has negotiated it to stay at £250 indefinitely or whether it will still increase. 

NameUnavailable

I'm wondering how your mortgate broker has negotiated the ground rent. It is set by the freeholder within the terms of the lease. Solicitors would need to be involved to vary the lease and I expect that the freeholder would want financial compensation as well as the legal fees paid (and this would done by the current leaseholder).

I'd check exactly what is going on here.

If it IS agreed at £250 today yes it will still increase in the future so is likely to still be an issue for the lenders.

ChloeManoey

NameUnavailable said:

I'm wondering how your mortgate broker has negotiated the ground rent. It is set by the freeholder within the terms of the lease. Solicitors would need to be involved to vary the lease and I expect that the freeholder would want financial compensation as well as the legal fees paid (and this would done by the current leaseholder).

I'd check exactly what is going on here.

If it IS agreed at £250 today yes it will still increase in the future so is likely to still be an issue for the lenders.

That's so true, I didn't even register that! Think my brain read "solicitor" instead! Yeah I'm quite sure that is not at all something that a broker would be able to do!