Indemnity Insurance vs Deed of Variation

KSC25

I am looking at selling my 2 bed flat and have had estate agents in to value.

2 of them have been quite insistent on starting the deed of variation now but our freeholder is charging everyone different amounts, its not consistent.

Another agent advised to get indemnity insurance although this does not protect us against every lender as its the mortgage lender that can apparently say no to the GR rise.

The ground rent doubles every 20 years. It is currently £250 a year and in 2-3 years time, it will rise to £500 a year for the next 20 years.

Does anyone have any advice? Would you recommend waiting to see what the right option is when I eventually have a buyer? I am just concerned about the cost.

This was never an issue when we purchased the property but according to the agents it is rife in our area.

Any help would be appreciated.

Thank you!

gm0

If you cut the range of buyers it's a problem.  They have to jump hoops to get affordability and a lender as you know. And will not be happy or necessarily sticky to your flat if you create a situation where they have to do it all again.  Your flat is just plain less attractive in a small way because of this.  

And some potential buyers will walk as soon as it becomes apparent.  If your flat has the best location in block. And in the best street - they will still be coming.  But if it's "just one of many similar" - not so much.   Any sane person would buy the one with it already done with - similar price, location and condition.  But of course "similar" and for sale is supply vs demand in your area.

Will you get more - or your money back for dealing with it - not necessarily.  Will you get it sold more easily - likely yes.  With similar flats for sale - I'd knock off the likely price of doing it from what I offered.  And you would accept that - or not - context any other bids.  But I would not pay a preimum for having done it.

Sitting on your hands and saying "indemnity only" fix it is cheaper.  But you  WILL cut the spread of buyers.  There being a lot around near you - helps a bit - as they don't have an infinite range of flats without it - similarly located etc. etc.  Agents playing it down etc.

You can of course try it the cheap way and be forced to change later if you don't succeed.   

But as you find somewhere and build a chain - if you are.  Putting a slow process you can't control the speed of - in the middle of that and starting it late - is pleasing to nobody. May in fact ruin your plans when your selller switches to someone who can get on with it.  While you wrangle with your former freeholder and statutory process.

eddddy

KSC25 said:

The ground rent doubles every 20 years. It is currently £250 a year and in 2-3 years time, it will rise to £500 a year for the next 20 years.

So I'm guessing your flat is outside London - and the issue is that when the ground rent increases to £500, it could be treated as an Assured Tenancy under the Housing Act, making it easier for the freeholder to repossess it.


FWIW, there is a bill going through Parliament at the moment which would remove this problem. It's expected to come into force in late 2025 or early 2026.  Once that's in force, mortgage lenders should no longer require indemnity insurance or a deed of variation in this situation.

The bill is called the "Renters Rights Bill" - in spite of its name, it addresses this issue with Leasehold property.

KSC25 said:

...deed of variation now but our freeholder is charging everyone different amounts, its not consistent.

There are different types of Deed of Variation which can solve this problem, which would have different costs...

• 1) A Deed of Variation which keeps the ground rent below £250. This would usually be the most expensive type. The cost should vary depending on the terms of each lease - i.e. ground rent currently payable, and length of lease

• 2) A Deed of Variation which essentially says "The freeholder promises not to repossess the flat using the Housing Act."

• 3) A Deed of Variation which essentially says "The freeholder promises to give the mortgage lender 28 notice before starting the process to repossess the flat" - so that the mortgage lender can pay the ground rent, and stop the repossession.

Options 2 and 3 should be cheaper. But some "dodgy" freeholders might approach it this way "Let's see how hard we can push each leaseholder, to get the maximum each leaseholder is willing to pay".