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    • themaz87
    • By themaz87 22nd Feb 18, 8:56 AM
    • 7Posts
    • 1Thanks
    themaz87
    House buying + ground rent above 250
    • #1
    • 22nd Feb 18, 8:56 AM
    House buying + ground rent above 250 22nd Feb 18 at 8:56 AM
    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
Page 1
    • Nick_C
    • By Nick_C 22nd Feb 18, 9:01 AM
    • 3,810 Posts
    • 5,234 Thanks
    Nick_C
    • #2
    • 22nd Feb 18, 9:01 AM
    • #2
    • 22nd Feb 18, 9:01 AM
    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
    • By themaz87 22nd Feb 18, 9:02 AM
    • 7 Posts
    • 1 Thanks
    themaz87
    • #3
    • 22nd Feb 18, 9:02 AM
    • #3
    • 22nd Feb 18, 9:02 AM
    Its 350 yearly in the area of Manchester. This is a common ground rent for the area.
    • Tom99
    • By Tom99 22nd Feb 18, 10:25 AM
    • 2,068 Posts
    • 1,392 Thanks
    Tom99
    • #4
    • 22nd Feb 18, 10:25 AM
    • #4
    • 22nd Feb 18, 10:25 AM
    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
    • By themaz87 22nd Feb 18, 2:41 PM
    • 7 Posts
    • 1 Thanks
    themaz87
    • #5
    • 22nd Feb 18, 2:41 PM
    • #5
    • 22nd Feb 18, 2:41 PM
    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
    • By kingstreet 22nd Feb 18, 2:50 PM
    • 33,367 Posts
    • 18,050 Thanks
    kingstreet
    • #6
    • 22nd Feb 18, 2:50 PM
    • #6
    • 22nd Feb 18, 2:50 PM
    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.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • themaz87
    • By themaz87 22nd Feb 18, 3:02 PM
    • 7 Posts
    • 1 Thanks
    themaz87
    • #7
    • 22nd Feb 18, 3:02 PM
    • #7
    • 22nd Feb 18, 3:02 PM
    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
    • By AnotherJoe 22nd Feb 18, 3:07 PM
    • 9,403 Posts
    • 10,390 Thanks
    AnotherJoe
    • #8
    • 22nd Feb 18, 3:07 PM
    • #8
    • 22nd Feb 18, 3:07 PM
    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
    • By davidmcn 22nd Feb 18, 3:34 PM
    • 7,652 Posts
    • 7,791 Thanks
    davidmcn
    • #9
    • 22nd Feb 18, 3:34 PM
    • #9
    • 22nd Feb 18, 3:34 PM
    it falls within the Housing Act 1988 and will be an Assured Shorthold Tenancy (AST)
    Originally posted by themaz87
    Where are you getting this bit from?
    • unoriginal86
    • By unoriginal86 12th Mar 18, 7:47 PM
    • 2 Posts
    • 2 Thanks
    unoriginal86
    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.
    Last edited by unoriginal86; 12-03-2018 at 7:50 PM. Reason: Extra information
    • themaz87
    • By themaz87 12th Mar 18, 8:50 PM
    • 7 Posts
    • 1 Thanks
    themaz87
    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.
    • Davidbrentssister
    • By Davidbrentssister 19th Apr 18, 4:55 PM
    • 4 Posts
    • 0 Thanks
    Davidbrentssister
    Hi, I just wanted to add I am having the same issue. My estate agent said he'd never heard of a lease being classed as an assured tenancy if the ground rent was over 250 a year. I reckon he thought I made it up! But now I realise it's not just me.

    The ground rent is 370 a year and has risen 70 in 3 years (which sounds a high % to me but I am not an expert). My solicitor has asked for a deed of variation to cap the rent so hope that is agreed. Otherwise I guess the flat might be unmortgagable I am not sure.
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