Assured Tenancy Leasehold options

BigZGolfer

Hello all! New here looking for some advice.

In the process of buying my first home and found out today that my lease is an assured tenancy (ground rent over £250, reviewed every 5y and can increase in line with RPI.  I am told is a big no no for some mortgage lenders, and whilst my bank is still willing the concern of it becoming difficult to sell down the line worries me...

Trying to explore options to keep going as the property is lovely and in many ways ideal, plus pulling out now would be a real mare. Have been told landlord is unwilling to do a DoV so exploring the route of indemnity insurance instead. Does anyone have any experience of with this? Would the policy make it easier to sell?

eddddy

BigZGolfer said:

In the process of buying my first home and found out today that my lease is an assured tenancy (ground rent over £250, reviewed every 5y and can increase in line with RPI.  I am told is a big no no for some mortgage lenders, and whilst my bank is still willing the concern of it becoming difficult to sell down the line worries me...

Here's what the various lenders say about the "ground rent over £250" issue:  
https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1852/


At a quick and rough count:

• 24 lenders explicitly say they will accept ground rents over £250 / £1000 with indemnity insurance

• 2 lenders explicitly say they won't accept ground rents over £250 / £1000 at all

• 6 Lenders said details have to be referred to them

• The others don't mention either way

Also, the Renters (Reform) Bill is currently going through parliament - and it seems it will get rid of the 'loophole' which can make a long lease an assured tenancy. So the problem you describe will go away, assuming the bill is passed.

Many people are estimating that will happen later this year. But who knows?

BigZGolfer

eddddy said:

BigZGolfer said:

In the process of buying my first home and found out today that my lease is an assured tenancy (ground rent over £250, reviewed every 5y and can increase in line with RPI.  I am told is a big no no for some mortgage lenders, and whilst my bank is still willing the concern of it becoming difficult to sell down the line worries me...

Here's what the various lenders say about the "ground rent over £250" issue:  


At a quick and rough count:

• 24 lenders explicitly say they will accept ground rents over £250 / £1000 with indemnity insurance

• 2 lenders explicitly say they won't accept ground rents over £250 / £1000 at all

• 6 Lenders said details have to be referred to them

• The others don't mention either way

Also, the Renters (Reform) Bill is currently going through parliament - and it seems it will get rid of the 'loophole' which can make a long lease an assured tenancy. So the problem you describe will go away, assuming the bill is passed.

Many people are estimating that will happen later this year. But who knows?

Thanks, the handbook is most useful!

Any idea what they class "Greater London" as? Property is in Surrey so won't be captured but would be good to know where the boundary is for if I need to pull the plug and resume my search 

eddddy

BigZGolfer said:

Any idea what they class "Greater London" as? Property is in Surrey so won't be captured but would be good to know where the boundary is for if I need to pull the plug and resume my search 

I'd guess "Greater London" means any property located in one of the 32 London Boroughs plus the City of London.

https://en.wikipedia.org/wiki/List_of_London_boroughs

JM68

High ground rent may limit the market for future sale.  As well as the actual (or perceived) issue of getting a mortgage it will also make it more expensive for any future buyer to extend the lease.

As an aside, most high ground rents are also associated with newer build properties (e.g. last 15 years or so), which often have higher service charges and sometimes have build quality issues.  That can also limit the market.

When we sold our (1930s) flat a year or two back we did not consider or view any modern developments for those reasons. Might just be us!!!

eddddy

JM68 said:

High ground rent may limit the market for future sale.  As well as the actual (or perceived) issue of getting a mortgage it will also make it more expensive for any future buyer to extend the lease.

£250+RPI ground rent would probably increase the lease extension cost by £15k to £20k, compared to a £0 ground rent.


But saleability depends on other factors...

• The local market. If all the modern flats in an area (or in a development) have £250+RPI ground rent, the buyer has no choice. If a buyer wants a modern flat in that area (or that development) they have to accept a £250+RPI ground rent.

• The buyers budget...

If, say, new flats are built (or other flats have their leases extended at a cost of £20k) with a ground rent of £0, the builders/owners will be looking for an extra £20k on the selling price.

So, in simple terms, buyers might have a choice of 2 types of similar flats...

• Option 1) A £250k flat with a £250+RPI ground rent (and a future additional lease extension cost of £20k)

• Option 2) A £270k flat with a £0 ground rent (and no additional lease extension cost)

A lot of buyers on a tight budget might prefer option 1.

BigZGolfer

Flat is relatively new, about 6/7 years old. Ground rent was well over the £250 threshold when it was new and most flats in the development were sold at that point so obviosly wasn't an issue then in terms of buyer's ability to borrow.

What worries me slightly more is the increase clause - it can go up by RPI every 5 years. The handbook says most lenders are fine with this as its not one of these silly leases where it doubles every review period, but most say they want an indemnity policy in place. 

Do you think this is the way to go (proceed buy with indemnity insurance) or should I just run a mile?  People saying different things to me atm...

Also with the indemnity insurance, who should be paying for this? Me or the seller?

Bfowler91

eddddy said:

BigZGolfer said:

In the process of buying my first home and found out today that my lease is an assured tenancy (ground rent over £250, reviewed every 5y and can increase in line with RPI.  I am told is a big no no for some mortgage lenders, and whilst my bank is still willing the concern of it becoming difficult to sell down the line worries me...

Here's what the various lenders say about the "ground rent over £250" issue:  



At a quick and rough count:

• 24 lenders explicitly say they will accept ground rents over £250 / £1000 with indemnity insurance

• 2 lenders explicitly say they won't accept ground rents over £250 / £1000 at all

• 6 Lenders said details have to be referred to them

• The others don't mention either way

Also, the Renters (Reform) Bill is currently going through parliament - and it seems it will get rid of the 'loophole' which can make a long lease an assured tenancy. So the problem you describe will go away, assuming the bill is passed.

Many people are estimating that will happen later this year. But who knows?

Hi eddddy you seem most helpful and informed on this subject I am wondering if you can assist?

I am getting so much mixed info on the topic. In process of selling my leasehold flat. Buyers solicitor has noted a ground rent escalation clause. My ground rent is £350 per annum and review period of every 10 years in line with RPI. My lease is 100 years unexpired. In Surrey. 
The buyers solicitors have asked for an indemnity policy of which my solicitor is arranging. I’ve seen posts saying some lenders decline and some saying majority of lenders accept this. 

Should the indemnity policy be accepted I assume my buyer would just need to arrange the same in the future should they look to sell (unless they extend the lease and abolish the GR clause..) along with ensuring they pay the ground rent, or this goes away in the future with the reforms. 

Should I be worried about anything else on this matter impacting my sale!? Lots of forums say it will be much more difficult for a buyer to sell on in future but I’m not following if lenders accept the policy? This is causing me a lot of worry and stress! Thanks