Mortgage Rejected Due To Leasehold Ground Rent ....

propertyhunter

I think you're going to have to do as others have suggested and look to remove the ground rent clause from the lease to peppercorn. Get a solicitor who knows what they're doing to assist you. It's worth doing as more lenders are paying attention to ground rent terms these days. The amount of time it takes depends on how cooperative the freeholder is. Whether your buyer is willing to wait is another thing too, as the timeline is unknown and could be months.

Try and get a sense of what the costs could be from the freeholder, or ask neighbours if they have done anything because you might not be the first person to have this issue and they might have some tips to share. Don't let the costs put you off if its higher than you expect, as you want to sell. See if you can recoup through the sale price if the market is in your favour as the previous response indicated. 

SteeleyScott

m0bov said:

Do a statutory lease extension on peppercorn, increase the sale price.

Is that possible on leasehold detached houses?

My research so far on options seems to follow (from least preferable/expensive, to most)... does this look correct?

:- Deed Of Variation to amend the deed that allows the freeholder to obtain the property in event of late groundrent payments (assume a bit expensive)

:- Deed Of Variation to amend the ground rent amount p/a to <=£250p/a (assume expensive)

:- Lease Extension (assume quite expensive, is it viable possible on houses?)

:- Purchase the Freehold (assume very expensive)

MaryNB

m0bov said:

Do a statutory lease extension on peppercorn, increase the sale price.

This is a house, not a flat. Different rules.

According to this website a leasehold extension could change the ground rent to a "modern ground rent" which could result in a ground rent increase.
https://www.lease-advice.org/faq/i-cant-afford-to-buy-the-freehold-of-my-house-can-i-extend-my-lease-instead/

MaryNB

SteeleyScott said:

m0bov said:

Do a statutory lease extension on peppercorn, increase the sale price.

Is that possible on leasehold detached houses?

My research so far on options seems to follow (from least preferable/expensive, to most)... does this look correct?

:- Deed Of Variation to amend the legislation that allows the freeholder to obtain the property in event of late groundrent payments (assume a bit expensive)

:- Deed Of Variation to amend the ground rent amount p/a to <=£250p/a (assume expensive)

:- Lease Extension (assume quite expensive)

:- Purchase the Leasehold (assume very expensive)

I know very little about lease extensions for houses but from what I've read it could be much cheaper than for a flat; however it may not reduce the ground rent, could increase it. 

Also you already own the leasehold, you want to purchase the freehold. 

eddddy

SteeleyScott said:

m0bov said:

Do a statutory lease extension on peppercorn, increase the sale price.

Is that possible on leasehold detached houses?

No - that doesn't work for a house, only a flat.

SteeleyScott said:

:- Deed Of Variation to amend the legislation that allows the freeholder to obtain the property in event of late groundrent payments (assume a bit expensive)

I guess you mean amend the lease (not amend the legislation).

You cannot force the freeholder to do that. They might refuse. Or they might ask for a large payment to agree to it. At the very least, they'll ask you to pay their (and your) legal fees.

SteeleyScott said:

:- Deed Of Variation to amend the ground rent amount p/a to <=£250p/a (assume expensive)

As above - you cannot force the freeholder to do that. They might refuse they might ask for a large payment to agree to it.
. 

SteeleyScott said:

:- Lease Extension (assume quite expensive)

The length of lease isn't the problem - it's the ground rent.  So there's no benefit to doing that.

SteeleyScott said:

:- Purchase the Leasehold (assume very expensive)

I guess you mean purchase the freehold. That would be the best option. There is a statutory route for doing that - i.e. you can 'compulsorily purchase' it. The freeholder can't stop you.

SteeleyScott

eddddy said:

I guess you mean purchase the freehold. That would be the best option. There is a statutory route for doing that - i.e. you can 'compulsorily purchase' it. The freeholder can't stop you.

Yes to everything you said above. Thanks for the corrections.

In the statutory route to purchase the freehold, who sets the price? and can it be challenged/negotiated?

eddddy

SteeleyScott said:

eddddy said:

I guess you mean purchase the freehold. That would be the best option. There is a statutory route for doing that - i.e. you can 'compulsorily purchase' it. The freeholder can't stop you.

Yes to everything you said above. Thanks for the corrections.

In the statutory route to purchase the freehold, who sets the price? and can it be challenged/negotiated?

There are statutory formulas for calculating the purchase price. (So you'd have thought it would be simple - but it's not!)

Here's some info on the calculation: https://www.lease-advice.org/advice-guide/leasehold-houses-valuation/

("Enfranchisement" is the legal term for "Buying the Freehold".)

The calculation includes variables like:  the value of the house, and capitalisation rates, etc 

• So your valuer might say "The value of the house is £x, the capitalisation rate is y% - so the freehold should cost £15k"

• But the freeholder's valuer might say "The value of the house is £a, the capitalisation rate is b% - so the freehold should cost £25k"

So you have to negotiate - and maybe end up agreeing to £20k. If you really can't agree, you have to go to tribunal and let them decide - which costs a shed-load of money on professional fees.

SteeleyScott

eddddy said:

Here's some info on the calculation: https://www.lease-advice.org/advice-guide/leasehold-houses-valuation/

("Enfranchisement" is the legal term for "Buying the Freehold".)

The calculation includes variables like:  the value of the house, and capitalisation rates, etc 

• So your valuer might say "The value of the house is £x, the capitalisation rate is y% - so the freehold should cost £15k"

• But the freeholder's valuer might say "The value of the house is £a, the capitalisation rate is b% - so the freehold should cost £25k"

So you have to negotiate - and maybe end up agreeing to £20k. If you really can't agree, you have to go to tribunal and let them decide - which costs a shed-load of money on professional fees.

thanks, very helpful to see that.

Straight forward to workout the valuation of the property... but how is the capitalisation rate calculated? is that the reversion? i'm struggling to understand the literature in how that is reasonably deducted?

eddddy

SteeleyScott said:

Straight forward to workout the valuation of the property... but how is the capitalisation rate calculated? is that the reversion? i'm struggling to understand the literature in how that is reasonably deducted?

Having gone through a very painful statutory lease extension - rather than a freehold enfranchisement, my assessment is this:

The legislation isn't completely definitive about what percentage figures to use.

But over the years, cases have gone to tribunal and court and judges have decided on different percentages in different circumstances. So there is a pile of (sometimes inconsistent) case law.


So one valuer will argue that case A is the best match to your situation, so you should use the percentages decided on in that case.

And the other valuer will argue that cases B and C are the best match to your situation, so you should use the percentages decided in those cases.

SteeleyScott

Fair enough -  I did have a look for some online calculators to try and get a ball park for enfranchisement (though oddly the lease extension was returning a similar final cost) 

https://www.freeholdcalculator.com/freehold_choose.php

Using the above, property value of £275k, 140year term remaining, £410p/a rent = £7100 or so to purchase the freehold. (screen shot below)

Though as you say without a solid reference point, It's tough to lockdown an accurate figure, I did notice even slight tweaks on that calculator's Yield / Reversion rate %'s spat out a wiiiildy different final figure. I imagine thats what will be negotiated on, as oppose to the property value.

(note: the default rate figures were 6% and 5%.... I didn't enter them)