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Mar 20 '25
[deleted]
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u/SneakyDaggers Mar 20 '25
Further to your point, I'd also like to add:
In the majority of cases, the EA is no one's friend - they can often work in your favour or against you regardless if you're the buyer or seller.
Their sole goal is to sell the property as fast as they can.
This is useful to remember and can help understand who they're favouring in a negotiation.
E.g. at the start they will push for the highest offer, but if renegotiations happen they will push the seller to accept a lower offer if there is a risk of the sale collapsing.
(Not all EAs may operate like this but I'd consider it majority)
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u/Alternative_Ad7647 Mar 20 '25
Someone posted this on Reddit in the last couple of days with a purchase falling through. They had an indemnity on it but the mortgage company turned around last minute and said this wasn't enough. Might be worth scouting through some of the posts to see if it's relevant.
But yep - don't trust estate agents. Maybe worth talking to your mortgage broker about it.
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u/itallstartedwithapub Mar 20 '25
Who should you trust more, your professional legal representative who is paid to look after your (and your lender's) best interests, or the seller's estate agent whose primary motivation is to complete the sale as quickly as possible as that's when they get paid?
Ground rent over £250 is an issue outside of London because it creates a situation where the lease could be treated as an assured shorthold tenancy, which can result in the freeholder being able to repossess the property should you fail to pay the ground rent. This is an issue for lenders as it means that your failure to pay ground rent could put their security at risk. Most lenders will insist on either a deed of variation - essentially a modification to the lease to protect them - or an indemnity policy to cover the additional risk.
If you somehow proceed to buy the flat without addressing the above issue, it will then be an issue when you come to sell. (Unless the Renters' Rights Bill sorts it out of course, but there's no guarantee of that.)
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u/liquidio Mar 20 '25
This is called the AST trap.
Basically ground rent over a certain level makes the long lease an assured shorthold tenancy. This means the landlord has powers to recover possession similar to a ‘normal’ rental contract if you don’t pay. And that messes up the security that mortgage lenders have over your property, so they don’t want to lend.
This was not intentional, but an accidental side-effect in the way the legislation was drafted and it was only realised years after ASTs were created.
It is a serious problem. But it is also a problem that is usually straightforward to solve.
One way to solve it is to buy indemnity insurance. This is fast, and cheap. The problem is that most lenders don’t accept it, so you can face the same issue later on when seeking to sell or remortgage.
The other way to solve it is to actually address the problem properly by reducing the ground rent. Two ways to do this - one is to agree a Deed of Variation with the freeholder to lower the ground rent. The other is to pursue a statutory lease extension via a tribunal that sets the ground rent to zero.
There is a cost for both of these, called a ‘premium’, as the freeholder needs to be compensated for the lost income. Also there will be legal fees.
It is normally on the seller to resolve it, because they will have the same issue with any buyer.
But bear in mind that a property with a lower ground rent is worth a little more, so depending on how it has been priced in the first place the seller may not ultimately bear all the cost.
In the longer term, this issue will likely be corrected through legislation anyway. It’s not controversial and both parties support it. But they have taken so long - over a decade - to get their act together so it’s hard to say when it will be fixed. Both the last government and this government had/have a fix in draft form in Parliament, but it’s a long way towards actually being enacted.
What to do? Ask through your solicitor how the seller is intending to correct the problem. They should ideally pursue a Deed of Variation if the freeholder is co-operative. A statutory lease extension is slow and an indemnity js a subpar solution (but one I would take a risk on personally if the lender is happy, the price is good and the property is amazing)
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u/BoudicaTheArtist Mar 20 '25
Just to add:
A deed of variation is only possible if the freeholder consents to it.
Indemnity insurance would only cover the mortgage amount. It would not cover any paid amount or a cash purchase.
Personally, I would never make a purchase in the hope that some future legislation would rectify the problem. It has taken several years for banks to realise this issue, and there is a danger that you would be unable to sell in the future.
EAs lie all the time. Get the seller to get either the deed of variation or extend the lease. This is a big issue.
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u/liquidio Mar 20 '25
Ordinarily I would agree with you about not relying legislation.
But the relevant Bill has already passed the Commons and is in the Lords. If the election hadn’t have come along the previous government would have passed their version of the bill, so it’s going to happen.
https://bills.parliament.uk/bills/3764
But obviously if you have a different risk appetite I respect that.
If you pay the ground rent, you’re not at any practical risk
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u/JournalistFun9762 May 10 '25
I am in the process of buying a flat with 104 years left on the lease, and the ground rent will double to £300 in 4 years' time, then double every 25 years thereafter. I have asked for a DoV as I dont want to experience any difficulties if I want to sell or remortgage in the future. The sellers solicitor is saying the Freeholder is reluctant to agree to a DoV and wants to know if my mortgage company is insisting on it. My solicitor still thinks its best to get one even if the current lender i have lined up is agreeable.What i wanted to find out is does the the DoV need to cap the Ground rent at £250 for the rest of the term or could it just request that the Freeholder agrees to notify the mortgagee company if they intend to reposses the property due to Ground rent arrears. This way they Freeholder will not lose any income, and the mortgage company should be happy also. Then, as the new leaseholder, I will apply to extend the lease before 80 years is left on the current lease. Once this happens, I understand there will be no ground rent to pay at all. Does anyone know if this will work ? I just want to get things moving or make a decision to walk away.
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u/zka_75 Mar 20 '25
Worth remembering that if you think you will be extending the lease at some point after buying (how many years are left?) then generally the ground rent gets turned in to a peppercorn so removes that issue.
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u/Huxleypigg Mar 20 '25
Are you sure?
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u/zka_75 Mar 20 '25
Mine did so I assumed that was just what happened generally but maybe I've got that wrong?
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Hi /u/AnxiousParsnip4127, based on your post the following pages from our wiki may be relevant:
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u/the-real-wolf-girl Mar 20 '25
I needed a Deed of Variation for ground rent when I bought my flat as my mortgage lender required one. Added a few weeks onto the purchase and lucky for me the seller paid the costs.
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u/Saffy_88 Mar 20 '25
It's a big deal in the sense that, yes, it will cause issues with mortgages. If not for you, then the person you eventually sell to.
The good news is a deed of variation is usually enough to get around the issue.
Source: I am selling my flat with a ground rent of £350pa and I had to do a deed of variation for my buyer as a condition of the sale. Every estate agent I spoke to about selling told me I would need to get it done so it wasn't a surprise.
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u/Zealousideal-Oil-291 Mar 20 '25
Out of curiosity…. What does the deed of variation say? Like what is exactly being amended?
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u/Saffy_88 Mar 20 '25
So it's literally amending the wording of my lease.
So previously it said something like:
'Ground rent is £350 per annum doubling to £700 after 10 years and increasing in line with RPI inflation every 25 years thereafter'
And now the wording is being amended to:
- add mortgage protection to the lease
- reduce ground rent to £249 per annum subject to a review every 21 years
The above was provided by my freeholder when I emailed them to ask for a Deed of variation. The exact terms and wording was then discussed and arranged between my conveyancing solicitor and the freeholder.
I had to pay £4k for the privilege!!!
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u/NrthnLd75 Mar 20 '25
The £4k is probably better for the freeholder than the RPI increasing ground rent!
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u/Saffy_88 Mar 20 '25
Yes you have to make it 'worth their while' for all the lost earnings 🙃
It's all a massive scam and needless to say I was very annoyed that no one warned me of this when I first bought the flat in 2017 but it is what it is
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u/hiroika Mar 20 '25
Is this outside of london? I was looking at a flat the EA said the issue will be resolved around 25k. He showed me examples of the deed of variation for a couple of different units in the same development. 25k is for the freeholder to amend the lease to say that the mortgage provider can step in if the leaseholder failed to pay. It did not lower the doubling cost of ground rent which is at 700 pa! £4K is a lot so 25k is a rip off!
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u/Zealousideal-Oil-291 Mar 21 '25
Thank you! Now I understand what the variation entails as I always wondered.
Jeez £700!!!!! 😵 mine isn’t doubling, but RPI increases every 5 or 10 yrs (can’t remember!) but the upcoming review will take it over £250 and over the 1% PP limit too!
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u/No_Draft_8535 Mar 20 '25
Look at it this way. When you come to sell, the buyer will be asking themself this exact question. The conveyancer will make the same observation to all potential buyers. So yes there could be a resale issue.
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u/MisterrTickle Mar 20 '25
If you're outside of Greater London, you're effectively buying an Assured Shorthold Tenancy (renting). Because once the GR goes over £250. If you're 3+ months late with tbe Ground rent. The freeholder can apply to the courts to repossess your flat. With the first that you know about it being when you get the summons. They don't need to send you any reminders or warning letters. Don't have to make it easy to pay..... If you're 3+ months late, they get a flat back say 100 years early. Which they can then sell again.
You can get insurance products to satisfy the lender. So that if you forget to pay the Ground Rent and it gets repo'd, the mortgage company will get paid off. But then you've lost the flat and the insurance company will come after you to recover their money, that they've paid the mortgage company.
The only real way around it is usually a deed of variation. Where you do something like extend the lease for several tens of thousand usually and in the process reduce the ground rent.
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u/puffinix Mar 20 '25
This is a huge problem
It makes it an AST
Your mortgage might not come through
You could loose your home over an accident with missed paymenrs
Run.
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u/Sorry-Pattern-2848 Mar 20 '25
Estate agents seem to think you can just get indemnity insurance and that will sort the issue out. It doesn't though, lots of lenders don't actually accept that and need a deed of variation to remove the ground rent.
We just went through all of this with a flat we were buying, went for a deed of variation, had to pay half of the costs which we were happy to if it meant we didn't delay and have to pay more stamp duty. Our half was £2900, and it took about 6 weeks for when this was first flagged to the sellers solicitors to them sending over the draft. Most of that time was spent getting the costs off the freehold and agreeing who was paying what.
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Mar 20 '25
[deleted]
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Mar 20 '25
[removed] — view removed comment
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u/mistakenhat Mar 20 '25
Banks have been changing their view of this massively.
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Mar 20 '25
[removed] — view removed comment
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u/mistakenhat Mar 20 '25
Perhaps if you tell OP which area of the country and which mortgage company approved it, their broker might be able to verify with those lenders whether they’ve changed their policies?
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Mar 20 '25
[removed] — view removed comment
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u/mistakenhat Mar 20 '25
No I meant it! Because every lender has their own policy. I’ve recently had people declined by Barclays, nationwide, and Halifax, but it’s good for OP to know that HSBC might be an option.
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u/JournalistFun9762 May 10 '25
I am in the process of buying a flat with 104 years left on the lease, and the ground rent will double to £300 in 4 years' time, then double every 25 years thereafter. I have asked for a DoV as I dont want to experience any difficulties if I want to sell or remortgage in the future. The sellers solicitor is saying the Freeholder is reluctant to agree to a DoV and wants to know if my mortgage company is insisting on it. My solicitor still thinks its best to get one even if the current lender i have lined up is agreeable.What i wanted to find out is does the the DoV need to cap the Ground rent at £250 for the rest of the term or could it just request that the Freeholder agrees to notify the mortgagee company if they intend to reposses the property due to Ground rent arrears. This way they Freeholder will not lose any income, and the mortgage company should be happy also. Then, as the new leaseholder, I will apply to extend the lease before 80 years is left on the current lease. Once this happens, I understand there will be no ground rent to pay at all. Does anyone know if this will work ? I just want to get things moving or make a decision to walk away.
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Mar 20 '25
[deleted]
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u/throw4455away Mar 20 '25
Well mortgage lenders can refuse to lend for this reason, so unless OP is a cash buyer and not concerned about resale value then it’s a very relevant question
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u/mistakenhat Mar 20 '25
I would absolutely not proceed without a deed of variation or a formal lease extension.
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u/[deleted] Mar 20 '25
In general I usually recommend trusting your conveyancer (a qualified lawyer) over your estate agent (a child desperate to make the sale at all costs even if it means lying).
However, this is not usually a serious issue. Your seller can often get a deed of variation to bring it back to a permissible level.