Ground Rent issue

deborahxc123

hi Guys, I am in a process of buying a property in Greenwich. The solicitor told me that she found out the ground rent is set to double every 25 years in the first 99 years (total lease 999). The current ground rent is 350pa. She said she needs to talk to the lenders to check if they are all right about this and we already got the offer from them. Do you think this could be an issue and will affect us re-selling the property in future?
Thanks

K_S

@deborahxc123 The doubling period being 25 years, this should not by itself cause issues with most lenders. Which lender is it?

It's when it starts going below 20 years that lenders start dropping off.

deborahxc123

K_S said:

@deborahxc123 The doubling period being 25 years, this should not by itself cause issues with most lenders. Which lender is it?

It's when it starts going below 20 years that lenders start dropping off.

The Lender is Halifax. I myself did not realize this is an issue before, because some of my friend who brought new flats told me this is normal. But the Solicitor saying she needs to make sure lender is OK about this makes me worrying. Not sure why she thinks this is outstanding....

K_S

@deborahxc123 I don't know Halifax's policy, but I don't expect that it would be an issue based on the limited info in your post. To give you an example of how mainstream lenders may look at it, here's one of their policies (specific to that lender) to doubling ground rents -

Where ground rents double:

- It should not double more frequently than every 20 years

- It should not continue to double after 125 years

- Ground rent up to 0.1 per cent of the current market value is acceptable

- May accept ground rent up to 0.2 per cent of the current market value subject to review

In recent years, I always make sure the client gets this info from the EA prior to spending any money on the purchase.

deborahxc123

K_S said:

@deborahxc123 I don't know Halifax's policy, but I don't expect that it would be an issue based on the limited info in your post. To give you an example of how mainstream lenders may look at it, here's one of their policies (specific to that lender) to doubling ground rents -

Where ground rents double:

- It should not double more frequently than every 20 years

- It should not continue to double after 125 years

- Ground rent up to 0.1 per cent of the current market value is acceptable

- May accept ground rent up to 0.2 per cent of the current market value subject to review

In recent years, I always make sure the client gets this info from the EA prior to spending any money on the purchase.

hi K_S, thank you for the detailed info and I think Barclay has the detailed policy but Halifax does not.
As for the 0.1 percent of the market value thing, does it mean the current ground rent or the ground rent of the whole lease period cannot be over 0.1 percent of the current market value? My flat is around 650K, so for now, the ground rent (350pa) is definitely within the 0.1 percent of the current market value

K_S

deborahxc123 said:

K_S said:

@deborahxc123 I don't know Halifax's policy, but I don't expect that it would be an issue based on the limited info in your post. To give you an example of how mainstream lenders may look at it, here's one of their policies (specific to that lender) to doubling ground rents -

Where ground rents double:

- It should not double more frequently than every 20 years

- It should not continue to double after 125 years

- Ground rent up to 0.1 per cent of the current market value is acceptable

- May accept ground rent up to 0.2 per cent of the current market value subject to review

In recent years, I always make sure the client gets this info from the EA prior to spending any money on the purchase.

hi  thank you for the detailed info and I think Barclay has the detailed policy but Halifax does not.
As for the 0.1 percent of the market value thing, does it mean the current ground rent or the ground rent of the whole lease period cannot be over 0.1 percent of the current market value? My flat is around 650K, so for now, the ground rent (350pa) is definitely within the 0.1 percent of the current market value

@deborahxc123 Sorry, I don't know off of the top of my head. I would assume it to be at the point of purchase, but that's just an educated guess.

I would be surprised if Halifax had an issue with these terms for a 650k flat, good luck!

bouicca21

The issue is whether it will go over £1000.  It then becomes an AST.  Changes to the law have been mooted but nothing has actually happened.  And whether it is reasonable really depends on inflation rate.  If inflation stays much the same then it’s not much of a real increase. If we enter a static or deflationary period then it will be increasing in real terms.

deborahxc123

bouicca21 said:

The issue is whether it will go over £1000.  It then becomes an AST.  Changes to the law have been mooted but nothing has actually happened.  And whether it is reasonable really depends on inflation rate.  If inflation stays much the same then it’s not much of a real increase. If we enter a static or deflationary period then it will be increasing in real terms.

yes, My solicitor mentioned this to me but she think we can buy an insurance to protect lender.... She said this is a popular solution?

deborahxc123

K_S said:

deborahxc123 said:

K_S said:

@deborahxc123 I don't know Halifax's policy, but I don't expect that it would be an issue based on the limited info in your post. To give you an example of how mainstream lenders may look at it, here's one of their policies (specific to that lender) to doubling ground rents -

Where ground rents double:

- It should not double more frequently than every 20 years

- It should not continue to double after 125 years

- Ground rent up to 0.1 per cent of the current market value is acceptable

- May accept ground rent up to 0.2 per cent of the current market value subject to review

In recent years, I always make sure the client gets this info from the EA prior to spending any money on the purchase.

hi  thank you for the detailed info and I think Barclay has the detailed policy but Halifax does not.
As for the 0.1 percent of the market value thing, does it mean the current ground rent or the ground rent of the whole lease period cannot be over 0.1 percent of the current market value? My flat is around 650K, so for now, the ground rent (350pa) is definitely within the 0.1 percent of the current market value

@deborahxc123 Sorry, I don't know off of the top of my head. I would assume it to be at the point of purchase, but that's just an educated guess.

I would be surprised if Halifax had an issue with these terms for a 650k flat, good luck!

Thank you so much for that. I will wait for the bank's reply then

beevee77

We are having this issue from the other side. Our buyer's solicitor have created a major fuss because they ground rent doubles every 25 years (from current rate of £150) and went to the lender to see if a Deed of Variation is needed. It isn't at all. The lender would be satisfied with an indemnity and we don't know why the solicitor is causing such a fuss. If your lender does have an issue with these lease terms then an indemnity policy should quickly resolve it. 

If you are worried this would cause an issue down the line with re-sale you could always look into a Deed of Variation at a later date once you are moved to see if the terms can be made more favourable. 

deborahxc123

beevee77 said:

We are having this issue from the other side. Our buyer's solicitor have created a major fuss because they ground rent doubles every 25 years (from current rate of £150) and went to the lender to see if a Deed of Variation is needed. It isn't at all. The lender would be satisfied with an indemnity and we don't know why the solicitor is causing such a fuss. If your lender does have an issue with these lease terms then an indemnity policy should quickly resolve it. 

If you are worried this would cause an issue down the line with re-sale you could always look into a Deed of Variation at a later date once you are moved to see if the terms can be made more favourable. 

hi Beevee77, yes, I think the indemnity is the insurance my solicitor is mentioning about. She said she does not think the lender will turn down the offer but it might come with some advise, such as the indemnity.  She even checked the quote of the insurance for me. But the whole thing just put me on a worrying mode and we are still waiting for the bank's reaction.