Escalating ground rent - who's at fault?

[david_s_]

We have recently been remortgaging a flat we have owned as a BTL investment for several years. We used a broker and were recommended a product with a particular lender, so we began the application process. After about 3 months we finally received the mortgage offer and solicitors were appointed. But that's when things started to go wrong. Our solicitor informed us that the lender would be unable to lend because of one of their lending criteria (readily available in the public domain):

"If, during the term of the mortgage, the ground rent charge is (or will) exceed £1,000 p.a. in London or £250 p.a. outside of London, we will be unable to proceed with the application."

The flat is outside London and the ground rent is currently £250 but is an escalating ground rent linked to RPI, and is next due for review within a couple of years. Clearly, it does not comply with this lending criterion.

At the point of application, our broker asked how much our current ground rent was but did not ask if or how it might increase during the term of the mortgage. Had they done so, it would have been immediately apparent this was not a suitable product for us. The clause shown above is published in two separate places on the lender's website and I would expect a professional mortgage broker immediately to spot this during their suitability checks and ask us the pertinent questions.

Not only are we now back to square one with our remortgage, but in the course of this sorry affair we paid for a valuation fee, solicitors' fees, ID checks and a management pack from the building management company - over £1,000 in total. All of this could have been avoided if the ground rent clause was identified at the outset of the application. Who is at fault here and how strong a case do we have to claim compensation against the broker?

[Stuart Phillips]

Well fundamentally the ground rent already being £250 should have set off alarm bells as any increase will immediately make the property much harder to remortgage. Once over £250 its much easier for the freeholder to be able to evict you. That said recent changes to the law on ground rents and AST's should neuter this issue soon.

However the ground rent should have been flagged at valuation stage. Its really common that properties are declined simply for "onerous ground rent" which is a catch all for any excessive ground rent even if it doesent double, or increase over £250 within the mortgage term. Some lenders even have limits on the % the ground rent can be against the value of the property. Many lenders are OK with RPI increases though, as long as thats only every x years, but its often down to the opinion of the surveyor.

Whilst the broker missed this, so did the valuer, so you might be able to leverage that to get a refund on those fees at least? Worth a shot.

 

[Simon Allen]

Difficult question as dependent on experience of broker. I always ask and a few other questions as well. To me it's the broker's responsibility to ensure that the application meets the lenders criteria and if this has published criteria the question should have been asked. If the criteria is not published I do not think the broker is at fault.

[david_s_]

@Stuart Phillips We have checked the valuation report and it simply says that "the ground rent and service charge are not known. We assume all terms are reasonable." Should they have ascertained the ground rent and the fact it is escalating, or is that beyond the scope of their responsibility to provide a valuation?

@Simon Allen The criteria are in the public domain - published in two separate places on the lender's website, in fact.

We have lodged a complaint with the broker but they have told us it's our fault for not telling them the ground rent was escalating! They never asked this question, so is it reasonable for us (as the client) to be expected to tell them anyway?

 

[Stuart Phillips]

Sorry, i realise its a remortgage. I think the surveyor would ask the agents about the ground rent and service charge, but on a remortgage i wouldnt expect them to.

I think you will have a hard time getting the broker to admit fault here, but in my opinion they let you down by not following up with further questions once they knew the ground rent was £250 currently. Escalating ground rents are a relatively new problem, but one that most BTL advisors should have come across in the last few years. I think i wrote a blog post about the problem around 4 years ago.

I agree the broker is to blame here, but i just dont think its black and white enough to expect formal redress. I'd find yourself a more experienced broker, perhaps a couple in this thread! 🙂