I have an RPI Lease which has an annual ground rent more than 0.1% of the capital value which is now not approved of by Nationwide. Is this likely to cause me a problem in the future?
Many thanks for your enquiry. Due to the rapidly developing nature of the issue - and with further changes afoot - it is very difficult to provide a definitive answer as to whether or not the ground rent escalation clause in your lease is likely to cause a problem for you in the future. Back in May Nationwide announced it would no longer offer mortgages where new build leasehold properties had punitive clauses on ground rents - a decision that attracted widespread press coverage. Essentially, Nationwide will no longer lend against new build leasehold properties where the starting ground rent is more than 0.1% of the property's value. Additionally, there will be no lending where the lease term is less than 125 years for flats and 250 years for leasehold houses.
The Council of Mortgage Lenders (CML) also recently issued some information for its lenders on lease terms in new build leasehold properties in England & Wales. The information published considers issues which may have particular implications for the value of the property and for affordability of the mortgage, including the level of ground rent and how ground rents increase over the mortgage term.
It is important to note that this is information only, and does not take precedence over the relevant paragraphs of the CML Handbook, nor does it override any of the individual lenders lending policies. It is likely that in light of this information issued by the CML that lenders will consider their lending policies.
You already own the leasehold interest. The lending policy of Nationwide and the information issued by the CML relates to new build leasehold properties. That’s not to say that in the future the “second hand” leasehold market won’t come under scrutiny, but at present it’s the new build market that’s under the spotlight.
Cassandra Zanelli. Partner at PM Legal Services