LKP has been deluged with home buyers saying that their mortgages have been refused at the last moment.
One caller was buying a flat in Windsor where the ground rent rose by £150pa every 30 years, but the mortgage was refused.
This is hardly an onerous ground rent.
The Council of Mortgage Lenders sent the following statement to LKP on April 20:
“The CML lenders handbook, which contains standard instructions from lenders to conveyancers, has a section on ground rents (s5.14.9); this sets some parameters for conveyancers to consider, in advising lenders.
“However, it does not go so far as far as defining lender policies on what constitutes acceptable ground rent terms. That is up to individual lenders; we are aware that some lenders are reviewing their policies to reflect concern about onerous ground rent clauses.
“As it is a regulatory requirement for lenders to take account of all known future changes to a borrower’s income and expenditure that could affect the affordability of their mortgage, ground rent may become a relevant factor in lenders’ assessments.
“Known future ground rent increases need to be taken into account by lenders in their affordability assessments.
“A lender’s risk might also be increased if ground rent values are disputed in the future and the borrower does not pay while in dispute, such as in such situations the least could potentially be forfeited and the lender’s security put at risk.
“Clearly, it is therefore helpful to both the owners of leasehold properties and mortgage lenders if ground rent increases are set at levels that will not materially change mortgage affordability in the future, or impact on the value of the property, and therefore create potential distortions in the availability of mortgage finance on affected properties.”