Ground Rent - Mortgage

beckyeb

Hi, we are currently in the process of selling our house. It is a leasehold, the current ground rent is £317 per annum. The sale price of the house is £228K. The ground rent increases every 3 years in line with RPI. 

Last year the ground rent was £289, increased this year to £317.

Our buyer has a mortgage with Natwest however he contacted me yesterday worried that they wouldn't provide the mortgage due to the rent being over the £250. (outside of London) He's currently waiting to hear back from his bank as to whether they will provide the mortgage.

Has anyone been in this same position and what was the outcome? We would be willing to purchase an indemnity policy for the bank if necessary.

eddddy

The buyer can probably get indemnity insurance to deal with the ground rent being over £250.  That might satisfy their mortgage lender.

But indemnity insurance only protects the mortgage lender, if the owner fails to pay the ground rent and the lease is forfeited. The owner would lose their equity - so your buyer might still be uncomfortable about that.



The RPI increase every 3 years might be a bigger problem for the mortgage lender. (Indemnity insurance can't deal with that.)

The only solutions to that are likely to be

• persuading the landlord to change the ground rent terms (i.e. a deed of variation of the lease) - probably in return for paying the landlord a chunk of money, or

• buying the freehold

But both of those might take quite a while to arrange.

beckyeb

Thank you for your reply. 

The buyer still wants to go ahead, he referred to the ground rent as "pocket change" so the lack of payment from his side or the amount isn't an issue, he owns multiple properties in the area. 

Does the indemnity insurance cover for a set amount, such as the amount of the mortgage? 

We were hoping we wouldn't have to go down the route of buying the freehold or applying for a deed of variation. We have had an offer accepted on another house and the chances are we would lose out due to the length of time that would take.

We bought this house 3 years ago with the ground rent above £250 and this is the first we have heard of this issue. Should our previous solicitor mentioned this during the purchase?

eddddy

beckyeb said:

The buyer still wants to go ahead, he referred to the ground rent as "pocket change" so the lack of payment from his side or the amount isn't an issue, he owns multiple properties in the area. 

So 2 things...

1) The buyer isn't buying your house to live in (as his principle residence) - so the £250+ ground rent is not an issue. That law doesn't apply to properties that are being rented out.


2)  More generally, if you're living in the property, the problem is unlikely to be that you can't afford the ground rent - it's that you fail to pay it for some other reason. e.g. The bill goes astray, dealing with a family crisis means you fail to pay the bill, etc.

If you are more than 3 months late paying the ground rent, the landlord has a mandatory right to take possession (i.e. taking your property from you). A court cannot refuse to grant a possession order.



But, as I mentioned, the 3 year ground rent reviews are likely to be a bigger issue.

Many lenders will refuse to give a mortgage, if there are 3 yearly ground rent reviews.

beckyeb

Hi, sorry I should have clarified earlier, this will he his main residence. 

We bought the house with a mortgage from Halifax 3 years ago and this was never brought up as an issue from Halifax or our solicitor. The ground rent when we purchased was £289.

K_S

@beckyeb As a seller, you don't have a lot of control over the buyer's mortgage or how they go about finding a lender, but none of the issues (GR rising with RPI every 3 years, being over £250, etc) mentioned in your posts should totally scupper any chances of a mainstream mortgage. Ideally, the GR being over £250 should have been run past the lender prior to applying.

Of course, the buyer may be limited lender-wise due to their circumstances (eg: NatWest because they need 100% of variable income to be considered for instance), but if not, their broker should be able to place the case with another mainstream lender if NatWest won't lend.

JReacher1

I bought a house with a similar ground rent term last year. Used HSBC for the mortgage and there wasn’t an issue. 

Racky_Roo

beckyeb said:

Hi, sorry I should have clarified earlier, this will he his main residence. 

We bought the house with a mortgage from Halifax 3 years ago and this was never brought up as an issue from Halifax or our solicitor. The ground rent when we purchased was £289.

This has only come to light over the past couple of years, so no, the lender probably didn't care back then. But now mortgage lenders are now getting strict on the matter