The Daily Telegraph - Saturday - Money
Leasehold scandal: banks reject modest ground rents
Britain’s ground rents scandal is widening as even people with modestly rising payments are being blocked from new mortgage deals.
It has emerged that over the past decade property developers sold thousands of leasehold homes with small print that meant ground rents, normally peppercorn payments made to freeholders, would double every decade.
Property firms sold on the right to these ground rents to large investors, attracting by the rising income. For some properties, ground rents are set to spiral to £10,000 a year, rendering them unsellable.
Last year the Government promised to ban the sale of leasehold homes and ensure that new long-term ground rents were set to zero. But the measures have yet to be turned into law and existing leaseholders are stuck battling onerous ground rent terms alone.
As the scale of the problem became apparent, lenders began to reject mortgage applications on properties with escalating ground rents. Many of the largest banks have banned “doubling clauses” entirely, but others have gone further.
As an estate agent, Shanaz Ansari was well aware of the growing problem. She knew first-hand the difficulty facing home owners. So she was shocked when NatWest rejected her mortgage application because the ground rent on her Portishead home was set to rise by £100 a year, before being capped at £1,000.
She said: “I could understand if it was one of the leases where the ground rent was going to hit £20,000, but this will only ever be £1,000. Not only that but the mortgage is only £49,000 on a £350,000 house.”
NatWest eventually approved the mortgage, but only after Ms Ansari agreed to take out insurance, which cost her £80, to guard against the risk that she wouldn’t be able to pay the ground rent.
Martyn Anderson of FS Legal, a law firm that represents leaseholders, said: “This is no less than a national scandal and action must be taken now, before time runs out. Many people are unaware that they are caught up in this leasehold trap.”
NatWest declined to comment but previously told Which?, the consumer rights group, that it would not release funds unless conveyancers and valuers confirmed that the lease terms were “reasonable”.