5 year ground rent review period - Home Ground

NiciBee

Hi, 

I'm a FTB so am looking for a little advice. I'm in the process of purchasing a flat (outside of London) and my solicitor has flagged the Ground Rent is £295, and is reviewed every 5 years at RPI - both of which are a problem for my lender. 

I'm not looking to change lenders as I have a good rate, so Home Ground (who manage the ground rent) have agreed that a deed of variation or an indemnity policy can be supplied to cover the ground rent exceeding £250 depending on my lender's preference. However, they also stated they won't vary the ground rent review period, and I have seen some bad reviews online about Home Ground in regards to legal changes etc which has me worried.

Is it unusual to have such a frequent review period? My lender is now willing to overlook that if the first issue is resolved, but my solicitors have indicated proceeding with the 5-year review could still be a problem when I come to sell, but I have no idea how big a problem this really is and if I should walk away or if they're being cautious.

Any insight is really appreciated.  Thanks

user1977

Given the rent is already over £250, what's the deed of variation going to say about it?

LegallyLandlord

Ground rent is such a scam, and many are worse than this as they double every 10 years. 

Any cost a leaseholder pays (ie ground rent and service charge) make the property more expensive to live in, and so the future value will reduce to reflect increases in ground rent. 

New leases can only have a peppercorn ground rent as the law changed in June. Maybe you should look for a new build flat?

eddddy

Taking a step back - the problem with ground rent over £250 (outside London) is...

In simple terms - if you are over 3 months late paying your ground rent, your freeholder has the mandatory legal right (under section 8 of the Housing Act 1988) to terminate your lease and take the flat away from you. (It's called "forfeiting the lease")

So your mortgage lender probably wants a Deed of Variation saying either:

• The freeholder promises never to use their right under section 8 of the Housing Act 1988 to forfeit the lease

Or

• The freeholder promises to give your mortgage lender 30 days notice in advance of using their right under section 8 of the Housing Act 1988 to forfeit the lease. (So the mortgage lender will pay the ground rent - to stop forfeiture of the lease - and add it to your mortgage.)

And it seems your mortgage lender will then be happy with the 5 yearly RPI ground rent increases.


The problem might be that some other mortgage lenders don't seem to be happy with 5 yearly reviews.  So it might be more difficult for you to remortgage in the future with another lender to get a better rate. And/or when you eventually sell, the buyer's preferred lender might not accept 5 yearly reviews.

ironlady2022

My review was every 25 years and this was flagged as an issue, now a none issue. Based on recent legislation, anything above 20 yr review should be ok, anything less, you gonna struggle. 

NiciBee

Thanks all. 

Eddddy has summarised that much better than I did! Yes, the deed of variation they've agreed would be that they'd never use their right to forfeit the lease.

I have looked at new flats because the service charge and ground rent is more attractive for them in this area, however the trade-off is that for the same price all the new builds are a fair bit smaller than this one. Hence me trying to work out how big a problem the 5 year review period is to make it worth it or not

NameUnavailable

The problem is that your ground rent is increasing every 5 years and even if you're happy with that many lenders (and potential buyers) won't be.

It will also make it expensive to extend the lease or buy the freehold (if that would ever be an option in the future).

Personally I would look for a flat with a shared freehold and long lease.

ironlady2022

NameUnavailable said:

The problem is that your ground rent is increasing every 5 years and even if you're happy with that many lenders (and potential buyers) won't be.

It will also make it expensive to extend the lease or buy the freehold (if that would ever be an option in the future).

Personally I would look for a flat with a shared freehold and long lease.

I agree, wouldn't touch it with a bargepole as the Seller will need to sort it off you back out