Ground Rent Advice

Marky4040

Hello All
Almost at the end of a stressful purchase so could anyone offer any advice / what's likely to happen on the following. leasehold apartment England. 

1. lease says ground rent doubles every 10 years (lease is 125 years, 111 remaining) currently is £200 instead of £300 (started at £150) . Solicitor gone back to sellers to find out why? Seller solicitor says "its in the lease why" but it doesn't explain why in the lease.....or at least i can't see it.  

2. My lender has the dreaded "no doubling ground rent clause" it's HSBC and I've had a read of their lending criteria on leaseholds but can't really see if they will let this one slide and still allow my mortgage offer to be valid? It's not like the ground rent is thousands of pounds, could anyone advise please?

MaryNB

Are you outside of London? Once the ground rent goes above £250 it becomes an "Assured Tenancy" which means it is much easier for the freeholder to take the lease back if you are a few months behind on ground rent. Lenders want to avoid this risk. Lenders don't like excessive doubling clauses. Every 25 years might be ok or in line with RPI but a lot don't like it doubling every 10 years. 

Marky4040

MaryNB said:

Are you outside of London? Once the ground rent goes above £250 it becomes an "Assured Tenancy" which means it is much easier for the freeholder to take the lease back if you are a few months behind on ground rent. Lenders want to avoid this risk. Lenders don't like excessive doubling clauses. Every 25 years might be ok or in line with RPI but a lot don't like it doubling every 10 years. 

No not London. Just wondering if lender takes a view on how much the ground rent is to start with then says its unlikely to be a problem further down the line. I mean 30yrs into the lease it's only £1200 in 2038.

MaryNB

Marky4040 said:

MaryNB said:

Are you outside of London? Once the ground rent goes above £250 it becomes an "Assured Tenancy" which means it is much easier for the freeholder to take the lease back if you are a few months behind on ground rent. Lenders want to avoid this risk. Lenders don't like excessive doubling clauses. Every 25 years might be ok or in line with RPI but a lot don't like it doubling every 10 years. 

No not London. Just wondering if lender takes a view on how much the ground rent is to start with then says its unlikely to be a problem further down the line. I mean 30yrs into the lease it's only £1200 in 2038.

It may be only £1,200 in 2038 but a) it's going to go above £250 in the next few years (6 years if the original clause and rate is applicable) and will become an Assured Tenancy and b) there's a still a doubling every 10 years clause. Lenders don't like either of those things. 

You may be able to afford £1,200 a year but that's not the issue here. 

I asked about London because the issue with it becoming an Assured Tenancy occurs is when it goes above £250 outside of London or above £1,000 within London.

ETA: 
I can't find anything on HSBC's website but the following has what appears to be an excerpt from HSBC's policies dated Nov 2021. 
https://therightmortgage.co.uk/hsbc-weve-improved-our-lending-policy/ 

• Maximum Ground Rent p.a. must not exceed £250.....under no circumstances could reviewed rent be increased so that it comes within the applicable Assured Shorthold Tenancy (AST) threshold in the Housing Act 1988
  ...
• Ground Rent doubles every 20 years or any longer period and does not continue to double after 125 years

Marky4040

MaryNB said:

Marky4040 said:

MaryNB said:

Are you outside of London? Once the ground rent goes above £250 it becomes an "Assured Tenancy" which means it is much easier for the freeholder to take the lease back if you are a few months behind on ground rent. Lenders want to avoid this risk. Lenders don't like excessive doubling clauses. Every 25 years might be ok or in line with RPI but a lot don't like it doubling every 10 years. 

No not London. Just wondering if lender takes a view on how much the ground rent is to start with then says its unlikely to be a problem further down the line. I mean 30yrs into the lease it's only £1200 in 2038.

It may be only £1,200 in 2038 but a) it's going to go above £250 in the next few years (6 years if the original clause and rate is applicable) and will become an Assured Tenancy and b) there's a still a doubling every 10 years clause. Lenders don't like either of those things. 

You may be able to afford £1,200 a year but that's not the issue here. 

I asked about London because the issue with it becoming an Assured Tenancy occurs is when it goes above £250 outside of London or above £1,000 within London. 

Yeah it's annoying the recent half arsed change to leasehold ground rent wasn't retrospective. Its of no use to those already in a lease paying ground rent, only new leases.
I'm sat here thinking do I want to start all over again finding a house..... its taken me nearly a year already and conveyancing is a nightmare, I don't think I can face it. 

user1977

Marky4040 said:

Hello All
Almost at the end of a stressful purchase so could anyone offer any advice / what's likely to happen on the following. leasehold apartment England. 

1. lease says ground rent doubles every 10 years (lease is 125 years, 111 remaining) currently is £200 instead of £300 (started at £150) . Solicitor gone back to sellers to find out why? Seller solicitor says "its in the lease why" but it doesn't explain why in the lease.....or at least i can't see it.  

2. My lender has the dreaded "no doubling ground rent clause" it's HSBC and I've had a read of their lending criteria on leaseholds but can't really see if they will let this one slide and still allow my mortgage offer to be valid? It's not like the ground rent is thousands of pounds, could anyone advise please?

Their instructions in the UK Lenders Handbook are that doubling ground rent more frequently than every 20 years is unacceptable (see 5.1.4.9):

https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/hsbc-uk-bank-plc/#C9113

so at the very least they'll need to be asked whether they'd waive that requirement.

Not sure why you think you're "almost at the end" of your purchase as these sound quite fundamental points!

MaryNB

Marky4040 said:

MaryNB said:

Marky4040 said:

MaryNB said:

Are you outside of London? Once the ground rent goes above £250 it becomes an "Assured Tenancy" which means it is much easier for the freeholder to take the lease back if you are a few months behind on ground rent. Lenders want to avoid this risk. Lenders don't like excessive doubling clauses. Every 25 years might be ok or in line with RPI but a lot don't like it doubling every 10 years. 

No not London. Just wondering if lender takes a view on how much the ground rent is to start with then says its unlikely to be a problem further down the line. I mean 30yrs into the lease it's only £1200 in 2038.

It may be only £1,200 in 2038 but a) it's going to go above £250 in the next few years (6 years if the original clause and rate is applicable) and will become an Assured Tenancy and b) there's a still a doubling every 10 years clause. Lenders don't like either of those things. 

You may be able to afford £1,200 a year but that's not the issue here. 

I asked about London because the issue with it becoming an Assured Tenancy occurs is when it goes above £250 outside of London or above £1,000 within London. 

Yeah it's annoying the recent half arsed change to leasehold ground rent wasn't retrospective. Its of no use to those already in a lease paying ground rent, only new leases.
I'm sat here thinking do I want to start all over again finding a house..... its taken me nearly a year already and conveyancing is a nightmare, I don't think I can face it. 

See my updated comment above. The £250 issue is very common as is the doubling every 10 years. Nearly every new build flat in my area has the ground rent at £250 - obviously developers trying to max out the ground rent without causing lending issues.

There is no reason for them to let your case slide, it's a very common policy for lenders. I'm not sure if a broker would be able to find a lender that would be ok with it but you'll just have issues when you come to sell. Unless the seller can get the freeholder to amend the lease, move on.  

eddddy

Marky4040 said:

Almost at the end of a stressful purchase so could anyone offer any advice / what's likely to happen on the following. leasehold apartment England. 

1. lease says ground rent doubles every 10 years (lease is 125 years, 111 remaining) currently is £200 instead of £300 (started at £150) . 

If the lease says the ground rent doubles every 10 years - that should have been picked up very early on. It means that all the mainstream mortgage lenders won't offer a mortgage.


Edit to add...

Indemnity insurance seems to be available for ground rents over £250 - so if that was the only issue, that might have been surmountable.

Marky4040

eddddy said:

Marky4040 said:

Almost at the end of a stressful purchase so could anyone offer any advice / what's likely to happen on the following. leasehold apartment England. 

1. lease says ground rent doubles every 10 years (lease is 125 years, 111 remaining) currently is £200 instead of £300 (started at £150) . 

If the lease says the ground rent doubles every 10 years - that should have been picked up very early on. It means that all the mainstream mortgage lenders won't offer a mortgage.


Edit to add...

Indemnity insurance seems to be available for ground rents over £250 - so if that was the only issue, that might have been surmountable.

I agree and better still, Estate Agent should collect this info at the start instead of wasting clients time and money.

So I'm hoping the landlord will confirm in writing they do not intend to increase the ground rent above 250 because it will make their leaseholds unsellable. 
Then I'm hoping i can indemnity against the clause as HSBC as stated. 

I'll be absolutely gutted if i have to start from scratch with a new property as this is the second time a sale will have collapsed because of a lease problem in the same town. 

Just waiting for responses now .......

anselld

If you do have to start again ( hopefully not) bear in mind you can get a copy of the lease from Land Registry by applying on Form OC2 for a £7 fee.   I would do this as a matter of course before makeing any serious offer on a Leasehold property.  Dont rely on the EA to give you correct information and dont let it get as far as solicitors before you get the Lease details.

eddddy

Marky4040 said:

So I'm hoping the landlord will confirm in writing they do not intend to increase the ground rent above 250 because it will make their leaseholds unsellable. 

Then I'm hoping i can indemnity against the clause as HSBC as stated. 

Confirmation in writing won't be good enough. You will need a Deed of Variation, which is an official document signed by the landlord and the leaseholder - probably prepared by the landlord's solicitor and approved by the leaseholder's solicitor.

Is this a fairly recently built property? If so who was the developer and who is the current landlord/freeholder?


Some developers have been blasted by the Competition and Markets Authority for selling properties with this kind of lease, so those developers have 'volunteered' to vary the leases, but I guess the process takes a while.

I believe that, so far, the list of developers are:

• Taylor Wimpey
• Countryside
• Persimmon

Plus a number of the companies that they sold freeholds to.
See: https://www.gov.uk/cma-cases/leasehold