The Council of Mortgage Lenders is drawing up guidelines on tackling the unfolding ground rent scandal as it puts pressure on housebuilders over the issue, Money Marketing sister title Mortgage Strategy has learned.
Last November it emerged that some property developers had been selling new-build houses on a leasehold basis with very expensive ground rents.
Some of the contracts saw ground rents double every 10 years, creating pressure on household finances and leaving homeowners with unsellable properties.
The practice garnered political criticism from communities secretary Sajid Javid and former housing minister Gavin Barwell.
Last month Nationwide brought in new lending rules on the issue. It said it would lend only on new-builds with leases of at least 125 years for flats and 250 years for houses, while ground rents had to be no more than 0.1 per cent of the property value.
Nationwide was the only lender to make an announcement on the subject.
Now the CML tells Mortgage Strategy it is drawing up guidelines for all lenders on how to handle the issue, and will publish the findings in the next few weeks.
CML spokesman Bernard Clarke says: “We are working on an information document setting out considerations for lenders about leasehold.
“It is intended to be helpful for conveyancers and valuers.”
The lender trade body is also talking to the Home Builders Federation about ensuring ground rents are fair and do not cause mortgage affordability problems.
Clarke says: “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.
“We have reinforced this with builders and with the HBF.”
Towards fairer terms
HBF head of communications Steve Turner says the building trade body has been working with both lenders and the Government on the issue of fairer ground rent terms.
He says: “We have been talking to all parties about what fair terms could look like.
“I think we are progressing in terms of how that will look. We are talking to lenders about what they are comfortable with.”
Turner adds that the talks are still ongoing.
Mortgage Advice Bureau new homes director Andy Frankish says: “It’s the right approach for the two trade bodies to be working together.”
Frankish adds that brokers were blameless in the ground rent furore, but nevertheless can help ease the problem.
He says: “We feel this doesn’t fit in the part of the advice process that the broker is responsible for. However, we have a duty of care to our customers that when we submit an application we get this factual information correct.
“That will impact on the mortgage application and what the surveyor gets when it comes through.
“We have a responsibility of awareness to be presenting the right questions when we’re submitting the mortgage application as an intermediary community.”
Many property developers that introduced the expensive ground rent clauses on new-build homes stopped using them once the issue came to light.
Taylor Wimpey has not built any leasehold properties since January this year and has set aside £130m to cover leasehold disputes.
In April, Javid said the Government would consider an outright ban as part of its response to a planned consultation on leasehold properties.
When asked by the Communities and Local Government committee if the Government would consider new laws to make sure leasehold terms were fair, Javid said: “It may be more than that…. [The Government] could ban houses built on leasehold terms for no good reason; ban it outright.”
He added: “What we are particularly focused on here is the ground rent and whether there is an unfairness in the system.”
Javid confirmed that the Government was not targeting leaseholds on flats as part of its campaign.