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Case Profile
Much has been written in recent months about the impending review of leasehold laws by the Law Commission. The Government has asked for this legislation to be examined after it emerged given that as many as 100,000 people may be trapped in properties that are ‘unsellable’ due to freeholders including clauses which can see ground rents as much as double in the space of ten years.
The number of leasehold properties being built has increased, particularly in certain areas of the country. According to a House of Commons report, developers opted to ‘sell new-build houses on long-lease agreements as this can represent a lucrative future income stream’. The Council of Mortgage Lenders (CML) provided advice to the industry in tackling this issue, ahead of the full results of the Law Commission’s consultation later this year and lenders have provided their terms and conditions relating to leasehold properties on the CML website.
Our client was directly affected by this issue. As a portfolio landlord, he was looking for a mortgage for a new build property. The apartment was being purchased by a Limited company. Our client had a couple of missed mortgage payments on his record, an adverse credit card payment from 3+ years ago and a recent credit card payment. However, this did not prove to be an issue.
The main layers of complexity in finding a suitable lender was that, over time, the ground rent was set to exceed 0.1% of the purchase price of the property. On the day of the property purchase, the ground rent was £350 per year. The leasehold terms then set out that it would double every eight years. This term was unacceptable to most lenders.
Solution
Our team of advisers have had significant experience in dealing with situations of this nature, as they have been privy to some deals nearly falling through in the latter stages due to this very issue.
Our adviser became very involved in the case, speaking to the estate agent involved to communicate directly with the developer. Over the course of some weeks, we negotiated with the parties involved to agree on a ground rent of 0.1% of the purchase price which would increase by the Consumer Price Index (CPI) every 20 years. This is acceptable to the majority of buy to let lenders on the market.
The outcome meant that our portfolio landlord client was able to purchase the property, enjoying a healthy yield on his rental income, without the concern that his investment would become unsellable in the long-term.
Deal Highlights
| Loan amount: | £155,000 |
| Rate: | 3.99% fixed rate for five years |
| LTV: | 75% LTD |
| APR: | 6.14% |
| Term: | 25 years |
| Type: | Interest only |
| Loan purpose: | LTD purchase new build off plan |
| Lender’s arrangement fee: | 2% of the loan amount |
| Early repayment charges: | 5% of outstanding loan amount if repaid in year 1, 4% in year 2, 3% in year 3, 4 & 5. |
Notes
This case study is for information and illustration purposes only. It is not an offer, or suggestion of an offer. Each mortgage case is assessed on an individual basis and there is no guarantee that the solution described here can be repeated in the future.
Please note that this specific deal may not be available to – or suitable for – all customers, dependent on their individual circumstances. The rate quoted may become out of date at short notice and may not be available at the point at which customers enquire about it. This document may not contain all the information needed for customers to make a decision and they should seek advice.
Overall cost for comparison 6.14% APR representative variable based on 5 years at 3.99%, and at 6.58% for the remainder of the term and the lender’s arrangement fees of £3100. The APRC is calculated using assumptions regarding the interest rate. The actual rate available will depend on your circumstances. Ask for a personalised illustration.
Your home or property may be repossessed if you do not keep up the repayments on your mortgage. Changes in the exchange rate may increase the sterling equivalent of your debt.
