House buying + ground rent above £250

themaz87 · 22 February 2018 at 9:56AM

Hi, I am writing this post cause I am having some issues as a first time buyer trying to get my first property and I would like your advice.

First of all, I am in the position where everything is ready for exchange except last minute, bank has said it needs to re-evaluate the flat again. This seems to happen because the ground rent is above £250 (outside London) and it falls within the Housing Act 1988 and will be an Assured Shorthold Tenancy (AST) .

This is very frustrating cause after few months preparing all documentation and getting so excited about it, now it seems the sell will fall though because the bank does not like this.

- Has anyone experienced something similar to this? Is there any hope to get the flat?
- Is there any bank or do you think the bank will take the risk? Apparently the risk is that if I don't pay the ground rent it could be repossessed by the landlord by law.

This is very unfair for first time buyers and it seems we cannot do much.

Thanks

Nick_C · 22 February 2018 at 10:01AM

I can't answer your questions, sorry. But that is a very high ground rent. How much is it exactly? And what increases will there be in future years?

themaz87 · 22 February 2018 at 10:02AM

Its 350 yearly in the area of Manchester. This is a common ground rent for the area.

Tom99 · 22 February 2018 at 11:25AM

You refer to AST, are you buying it as an investment to let out?

What is the length of lease remaining and the ground rent review clause?

themaz87 · 22 February 2018 at 3:41PM

Hi Tom,

- buying to live in there.

- Lease has 250 years remaining and it will be reviewed in 25 years. I have been told its not doubled but it may get increased by inflation.

kingstreet · 22 February 2018 at 3:50PM

Is it a newbuild?

Are you trying to use Nationwide?

Is the ground rent in excess of 0.1% of the purchase price?

Nationwide (& The Mortgage Works) criteria;-

Maximum starting ground rent on all new build properties with a leasehold tenure is limited to 0.1% of the property value.

Ground rent must always be reasonable during the lease term. For example, ground rent escalation should be linked to Retail Price Index or similar, and unreasonable multipliers of ground rent will not be permitted, e.g. doubling every 5, 10 or 15 years.

themaz87 · 22 February 2018 at 4:02PM

Hi kingstreet, building is 10years old.

Ground rent is 0.16% of the purchase price.

I was trying to use Halifax and the evaluator needs to report what is going to happen. Aparently the property can get devaluated because of this.

AnotherJoe · 22 February 2018 at 4:07PM

I thought an Assured Shorthold Tenancy was only relevant to people renting / landlord.
And similarily Housing Act 1988 is to do with landlords/tenants.

Something doesn't sound right here if you are buying the leasehold, unless there are sections of these laws that cover leasehold to freehold relations.

davidmcn · 22 February 2018 at 4:34PM

themaz87 wrote: »

it falls within the Housing Act 1988 and will be an Assured Shorthold Tenancy (AST)

Where are you getting this bit from?

unoriginal86 · 12 March 2018 at 8:47PM

I've joined this site to say that I have a similar issue to the OP. In my case, the mortgage company will not lend against the property unless the terms of the lease are changed. I have only been notified of this issue a week before the proposed the exchange of contracts date.

The issue as I understand it is that:

"The definition of !!!8220;assured tenancies!!!8221; in the Housing Act does not exclude long leases. When the rent is reviewed, in certain circumstances, and where the rent limit under the Housing Act is met, it may result in the long lease qualifying as an !!!8220;assured tenancy!!!8221; under the Housing Act." Quoted from the site cms-lawnow.com. A long lease will qualify as ASTs once the ground rent exceeds £250 (or £1,000 in London) a year.

"The problem with your Lease being classed as an AST is that the Freeholder/Landlord can potentially bring the Lease to an end by proving one or more of the grounds for possession set out in Schedule 2 of the Housing Act 1988. One of these grounds relates to non-payment of Ground Rent. In other words, if the Freeholder/Landlord can prove that you have not paid your Ground Rent, then the Freeholder/Landlord can apply to the Court for a Possession Order, which the Court MUST grant providing the arrears are proven." Quoted from the site newsontheblock.com. It is much easier for a freeholder/landlord to repossess the property if the lease is classed as an AST.

If I was taken to court for the non-payment of ground rent and a judge ordered that the lease be forfeited from me under these terms then the mortgage company would no longer have any security held against the property. The Council of Mortgage lenders have published guidance recognising this issue as a potential risk to lenders security. I am unable to post links.

In my case, the mortgage company want a deed of variation against the lease to protect themselves against the risk of this happening. If the freeholder/landlord refuses to do this then my mortgage company will not lend against the property and I will not be able to proceed with the purchase.

I hope that this provides enough information to inform others about this. My solicitor did tell me that she had only seen this becoming an issue in the past few months.

themaz87 · 12 March 2018 at 9:50PM

I have a new update with the purchase...

Landlord refused to do the deed of variation so an alternative is required.. otherwise lender would not agree with he mortgage.

At the moment, solicitors are looking for the possibility of having a new indemnity insurance to cover the Housing Act defective statutory provisions which affect this lease. If this is the case, purchase can be completed.

This situation is very frustrating as it seems investors are always in advantage leaving normal people unable to purchase property. I hope law changes and gets sorted cause this is abusive.

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House buying + ground rent above £250

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