Estate Rentcharges and Mortgages

princeofpounds

Hi all,

I posted a question in the house buying subforum, but I realised I should also raise a query here as an important part of my question relates to mortgage availability on houses with estate rentcharges.

The short version is that I have a relative looking at buying a freehold property. The property turns out to have an estate rentcharge. Their solicitor is advising not to proceed unless a deed of variation is obtained that removes some of the more onerous powers of the management company in the even of non-payment. Hopefully we can sort that out. More context in the link below, but my questions that relate to mortgages are:

- What is the current state of play regarding the availability of mortgages for such properties? I know they have got a lot more difficult. A few years back I used to be able to check the CML Handbook to answer questions like this but I see it has gone behind some kind of paywall now they are part of UK Finance. Any brokers or others able to answer that one?

The seller, through the EA, claims they got a mortgage a year ago with no problems (the details are vague...) so it has been hard to convince them of the seriousness of this objection so far, particularly as their EA is clueless and their solicitor is so old-school he doesn't appear to understand the issue yet (perhaps he will read up on it when he comes back from his unannounced holiday...).

- I notice that indemnity insurance products are starting to be introduced to protect lenders against these issues. How widely accepted are these currently? Are they a once-and-done type solution or something that needs to be done with each new mortgage?

Many thanks to anyone who can help!

Link to other thread:

https://forums.moneysavingexpert.com/discussion/6287768/estate-rentcharges#latest

[Deleted User]

https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1865/

No paywall for cml.  This link should answer your question for each lender

K_S

@princeofpounds An old post of mine that may help a bit.

K_S said:

Jillmoneysaver said:

Our mortgage offer has been approved. We are close to exchange, but our solicitor let us know that they need to let our lender know that the property carries a rentcharge. It's freehold. Currently, there are 15 properties on the small private estate (built in 1990s so not a 'New build') and it's just under £300 pa. (this year, but it's service fees, so can rise - just outside of London). Once we purchase the property, we would be shareholders (management company owned by residents). However, section 121 of LPA has not been excluded from the rentcharge clause. The plan is to purchase an indemnity insurance to protect the lender. 
I am fully aware of the risks to us, etc. if we didn't pay the rentcharge. 
What I am anxious about is if the lender will accept the indemnity policy. 

@jillmoneysaver It depends on the lender and what the rent charge actually says.

I've done 3 new builds in the past month with 3 different lenders. All of them came with a rent charge and all of them were drafted in a manner acceptable to lenders.

The problems usually come up when the rent charge clause is not acceptable to the lender and the builder/developer is unwilling to agree to a variation to make it compatible.

Generally speaking (not saying this is for ALL lenders), it's one/more of these that need to be met by the rent charge clause -

1. The provisions under section 121 of the Law of Property Act have been excluded under the estate rent charge clause.
2. The estate rent charge clause includes a mortgagee protection clause, which states that notice of at least 28 days is to be given to the mortgagee prior to any enforcement action being taken by the owner of the estate rent charge.
3. The owner of the estate rent charge is a management company comprising of the residents, who are the shareholders of a private freehold development.

Given that this appears to managed by residents, I would expect it to be ok. But obviously your solicitor is the person who will know best as to what the entire scenario is. Hopefully it'll work out, good luck!

princeofpounds

Thanks everyone, that's been very helpful. We've managed to explain and evidence the issue so the seller's EA understands what's going on now. So hopefully they can progress a solution. 

Eassenav

we purchased a property with a similar rent charge imposed 15 years ago and have mortgaged/remortgaged 3 times now.  There is a condition on the property that we effectively have to ask permission to get a mortgage on the property and for this we are charged £120 (money for old rope).  We are currently going through a remortgage and our conveyancer asked for proof that we did not owe any charges to the management company, they wanted to charge £60 for this information, but the conveyancer was satisfied with screenshots from our account portal that showed we were up to date on payments.