Since the problem of the leasehold scandal came to light, some mortgage providers are refusing to lend on leasehold homes with ground-rent-doubling clauses, giving prospective buyers difficulty securing a mortgage.
The consumer group Which? published a report showing how the top ten largest mortgage lenders approach unfair ground rent charges on leasehold homes. Some take an uncompromising approach, others are more flexible.
Lloyds Banking Group (including Bank of Scotland and Halifax)
These lenders will get conveyancers to assess if a home has unreasonable clauses in its lease. Cases are then handled individually.
The building society takes a hard line on the issue. It was the first lender to change its rules when news of the leasehold scandal broke. The lender will turn down mortgages on new build homes where ground rent charges exceed 0.1pc of the value of the house. It will not lend at all on cases where ground rent can double.
RBS (including NatWest)
These banks require conveyancers and valuers to judge leasehold terms are “reasonable” before they grant a mortgage.
The bank will not lend on any properties with “excessive leasehold cost increases”.
The company will not lend at all on leasehold houses, but will on leasehold flats. The lender’s conveyancers will flag up cases with “unreasonable” leasehold terms.
A Barclays spokesman says: “We are supportive of not lending to properties with onerous terms and escalating ground rents.”
This lender will lend on all leasehold properties, though there must be at least 30 years left on the lease at the end of the mortgage term. However, the firm will not lend in cases where there is “excessive or unreasonably escalating ground rent”.
Coventry Building Society
The company will take action if it thinks ground rents are “excessive or unreasonable” and will judge these cases individually.
Richard Branson’s lender will extend mortgages to homes with escalating ground rents. However, it says these have to be “reasonable” and cannot harm future house prices or ability to sell the home.
Yorkshire Building Society
The lender will grant loans to leasehold properties with initial yearly ground rents of up to £1,000. It allows clauses that lets these double, but says any review of ground rent cannot take place any sooner than once every 21 years.
The lender takes this relaxed approach because it does not want to see borrowers locked out of mortgage deals because of the ground rent scandal.
A Yorkshire Building Society spokesman says: “We haven’t completely restricted lending on properties with ground rents as we believe that people should have a choice when it comes to the home they want to buy.”
The lender will judge mortgages on leasehold properties on a case-by-case basis.
Despite some lenders having a strict stance on leasehold homes, there is some good news for those whose main issue has been the doubling of ground rents. The UK government have introduced an industry pledge that creates a mechanism for freeholders to remove the unfair ground rent clauses from existing leaseholders’ contracts. The pledge is voluntary and not enforced by law, but as many as forty developers have already signed it.