Doubling ground rent

Midda25

Hi there

We are selling our house and very close to exchanging. We own a leasehold property and our buyers solicitor has raised a last minute enquiry regarding a clause in our lease around doubling ground rent and that the lender (Barclays) has an issue with the clause in order to lend. 

Our ground rent is £300 per annum and doubles every 20 years. The property is 7 years old and the lease has 113 years left. We are selling our property for £285,000 so our ground rent is 0.105% of the property value. 

We have looked at the CML handbook for conveyancing and our solicitor is stating that our lease meets the guidelines for lending so this should not be an issue. 

The handbook states the following:

Ground rent must not exceed 0.2% of property value, 0.1% for new build properties.

RPI linked Ground rents are acceptable providing rent is reviewed not more frequently than once every 5 years. 

Doubling Ground rents are acceptable provided they do not double more frequently than every 20 years and does not continue to double after 125 years.

Am wondering what people’s thoughts on this are and whether our buyers solicitor knows what he is doing as it looks under these guidelines that the lending should be allowed. 

Thanks for any advice!

davidmcn

Yes, that looks compliant to me.

Midda25

davidmcn said:

Yes, that looks compliant to me.

Yes we thought so. Can you think of any reason why the solicitor has raised this as an issue. He has said the lender doesn’t like the clause. I am wondering if he has actually contacted them or is just playing games. 

davidmcn

Might just be paranoid and asking the question. Fairly common for solicitors not to take the CML handbook as gospel, even though the whole point of it is to avoid lenders having to answer daft queries all the time.

Midda25

davidmcn said:

Might just be paranoid and asking the question. Fairly common for solicitors not to take the CML handbook as gospel, even though the whole point of it is to avoid lenders having to answer daft queries all the time.

Thanks for this davidmcn. Have just noticed the following in the handbook too:

If, during the term of the mortgage, the Ground rent charge is (or will) exceed £1,000 p.a. in London or £250 p.a. outside of London an AST indemnity is required (other than for buy to let properties).

Not sure if this applies if the above criteria is met though. It almost seems like an underwriter should be able to see to something like this rather than a straight rejection. 

davidmcn

Midda25 said:

davidmcn said:

Might just be paranoid and asking the question. Fairly common for solicitors not to take the CML handbook as gospel, even though the whole point of it is to avoid lenders having to answer daft queries all the time.

Thanks for this davidmcn. Have just noticed the following in the handbook too:

If, during the term of the mortgage, the Ground rent charge is (or will) exceed £1,000 p.a. in London or £250 p.a. outside of London an AST indemnity is required (other than for buy to let properties).

Not sure if this applies if the above criteria is met though. It almost seems like an underwriter should be able to see to something like this rather than a straight rejection. 

Ah, that might be an issue (unless you're in London?). Not the doubling but that you're already over £250.

Midda25

Perhaps that’s the issue. Seems a bit contradictory of the previous statements. I’d imagine that you won’t find too many ground rents below £250 per annum outside of London unless they’ve already resolved this issue either through deed of variation or lease extension (which is what we want to avoid if we have to)

wlondoner

Seems normal to me!

Also note the government have reform plans for leaseholders which is coming soon this looks really good and once purchased means no more ground rent: 

https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes

AdrianC

wlondoner said:

Also note the government have reform plans for leaseholders which is coming soon this looks really good and once purchased means no more ground rent: 

https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes

Woah, hold on...

That is the ENTIRETY of detail so far.
Draft legislation has to be written.
It has to go through both houses of parliament, with amendments drafted, and be voted on.
Then it has to be passed into law.

And all of this presupposes the government actually find time and inclination for it, beyond the current headline "We'd really quite like to...".

The next election is in May 2024. Just over three years. Will it all be done and dusted by then?
Will the PM or responsible ministers change before then?
Will it simply peter out in the long grass?

davidmcn

Midda25 said:

I’d imagine that you won’t find too many ground rents below £250 per annum outside of London 

Really? Why? I'd have thought the vast majority are under £250. Ground rents are often either token "peppercorn" amounts or levels which have never been increased with inflation.

bouicca21

What David said. Mine’s only £250 and I’m in London.