Leasehold / ground rent - what to do?

Livingincolour

Hi all, possibly about to open a leasehold / ground rent can of worms here…

Our situation is we are many months into process of buying a leasehold flat in London. Our mortgage lender is now refusing to lend on terms of current lease as they consider them unfair - namely the fact that the ground rent base rate is £400 and then increases every 5 years linked to RPI. Our solicitors have suggested the vendor organises a deed of variation on the lease to extend the review period and to cap the rent at £1,000 so it can’t fall into AST territory but this could obviously add months to the sale which would take us way past the stamp duty relief deadline and freeholder could refuse this anyway.

We have spoken to our mortgage broker and they have sent a list of other mortgage providers including many high street banks that do some happy to lend against these terms. So our options seem to be to sit tight and see if the vendor/freeholder will push through a deed of variation, or to try to switch mortgage provider & get it through before stamp duty deadline on the current terms.

I’ve seen lots of conflicting reports on whether people feel 5 year ground rent reviews linked to RPI are unfair and will affect marketability of the flat, but the fact is we are seeing in real time that it is affecting marketability of our flat as it is scuppering our purchase, so we are worried that we are being reckless trying to push through the sale on the current terms. At the same time, lots of banks DO lend on these terms so can they really be that bad? It’s a bit of a head scratcher.

Any thoughts or advice from people with experience/leaseholders in similar situations would be greatly appreciated.

rachel230

The ground rent terms are onerous. You will have problems going forward should you ever wish to sell it.

eddddy

If you can find a mortgage lender who's willing to lend... a couple of possible options:

• A ) You can do a Statutory Lease Extension after you purchase - which will reduce the ground rent to zero.
• B ) You can wait for the new leasehold reform legislation after you purchase, which is supposed to let you buy-out ground rents, and reduce them to zero (If and when those reforms happen.)

But with an uncapped, RPI linked ground rent - expect both those options to cost many thousands (maybe into the tens of thousands). So maybe investigate the cost of a lease extension, and adjust your offer accordingly.

The seller can ask their freeholder about informally 'buying-out' the ground rent, or changing the the ground rent terms so they are 'non-onerous' (through a deed of variation).  But typically, freeholders will ask for even more money for doing that - especially if they know the seller is desperate to sell because the stamp duty holiday is ending!

FWIW, the legislation that has resulted in the £1000 Assured Tenancy anomaly is also supposed to be changed with the new leasehold reforms. 

withaspritz

5 year GR review period, RPI linked or otherwise, is definitely onerous. I'd walk away

StandingInTheSun

I would question the wisdom of purchasing a flat with ground rent terms like that.

user1977

I wouldn't be as certain as others than an index-linked rent is onerous - it's the ones which go up exponentially (irrespective of what inflation does) which are more problematic. But it's certainly less marketable than all the others which don't do that...