The Council of Mortgage Lenders (CML) is drafting recommendations on how to tackle the current scandal regarding new-build ground rents, as it makes it clear to house builders that the practice is not acceptable.
Recently, it has come to light that certain property developers have been selling new-build homes under leasehold contracts, which demand disproportionate ground rents.
The practice, which in some cases has seen ground rents double, has been strongly condemned by both Secretary of State for Communities and Local Government, Sajid Javid, and the former housing minister, Gavin Barwell.
So far, Nationwide has been the only lender to enforce lending rules to help minimise the issue, announcing last month that it will only accept new-build flats with leases of at least 125 years and new-build houses with leases of 250 years. Nationwide has also stipulated that ground rents can be no more than 0.1% of the property value.
The CML is due to publish its own findings in the coming weeks, along with its response to those findings. The Council is in talks with the Home Builders Federation (HBF), as they work on how to ensure that ground rents demanded by developers are fair and don’t impact on mortgage affordability.
Bernard Clarke, spokesman for the CML said:
“We are working on an information document setting out considerations for lenders about leasehold. It is intended to be helpful for conveyancers and valuers.”
“Lenders have a clear regulatory requirement to take into account any significant changes to the borrower’s income and outgoings. So it is helpful to set ground rents at levels that will not materially affect affordability in the future.”
Steve Turner, head of communications at HBF said that they have been talking to all parties about what fairer terms could look like, while working with with both lenders and the Government.
“I think we are progressing in terms of how that will look. We are talking to lenders about what they are comfortable with,” he said.
One major developer, Taylor Wimpey, has kept £130m in reserve to settle leasehold disputes and has not built any new-build lease homes since the beginning of the year. Others stopped using expensive ground rent clauses altogether, once the practice had come to light.
According to Sajid Javid, the Government is considering an outright ban of leaseholds on new-build houses, which will form part of its response to an upcoming consultation on leasehold properties. In answer to a recent question about the implementation of new laws surrounding leasehold terms, he replied:
“It may be more than that…. [The Government] could ban houses built on leasehold terms for no good reason; ban it outright.”
“What we are particularly focused on here is the ground rent and whether there is an unfairness in the system.”
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