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Short Lease Mortgages and Lender Ground Rent Criteria

by Raminder Uberoi — Posted on 6 January, 2020

A summary of lenders minimum lease terms when looking to secure a short lease mortgage and their ground rent criteria

Securing a mortgage on a flat with a short lease

If you buy property that is a leasehold, you are essentially buying the right to live in that building for a set number of years. This is the number of years that the lease has to run. At the end of this lease, if it has not been extended, the property will revert back to the freeholder; for information on obtaining a lease extension, read our blog on negotiating a lease extension.

Purchasing a property with a short lease can be difficult, so it’s essential to find the right lender. At Starck Uberoi, we work with lenders on our lender panel who offer mortgages for those looking to purchase a short-lease property.

If looking to secure a mortgage on a leasehold, lenders will have a set minimum unexpired lease term that they accept. If the lease term doesn’t meet that minimum, you will not be granted a mortgage without a lease extension first.

Why do lenders set a minimum unexpired lease term?

Once a lease term drops below 80 years, the premium for obtaining a lease extension drastically increases into the tens of thousands. The longer you wait, the more expensive it becomes. Wait too long, and the value of the property is diminished. Therefore, lenders don’t want to secure mortgages on properties that run the risk of them not being able to get their investment back. That is why they set minimums for unexpired lease terms, to prevent this from happening.

For example, Nationwide’s conditions say that the minimum unexpired lease term they will accept is 55 years. However, there must be at least 30 years remaining at the end of the mortgage term (regardless of the length of lease at the start). Therefore, if you took out a 25-year mortgage on a 150-year lease, the first condition is satisfied with more than 55 years left on the lease. After the mortgage term expires after 25 years, there will be 125 years left on the lease. The second condition is also satisfied as the lease is in excess of 30 years remaining.

 

Lender Conditions on Short Lease and Ground Rent

Below you can see a list of lender panels Starck Uberoi works with, and their requirements for minimum lease terms and ground rent.  This table should help you understand if you can secure a mortgage on a short lease and if you can still secure that mortgage when there is accelerating ground rent.

These figures have been extracted from the Council of Mortgage Lenders Handbook and are correct as of September 2019. If you are considering taking out a short lease mortgage, your mortgage advisor and solicitor should check these details. Starck Uberoi’s diligent conveyancing solicitors are committed to giving the best and most up to date advice. To see for yourself, give us a call on 0208 840 6640.

Ground Rent

Generally, the CML handbook’s view on ground rents is that:

5.14.9 We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable.”

However, some banks may have more specific guidelines on ground rent, which can be found below. Once again, this information is correct as of September 2019.

The Mortgage Works, for example, specifically state that if a starting ground rent is more than 0.1% of the property value, it will be rejected. An example of this would be if a property is worth £240,000 and the ground rent is more than £240, the mortgage would be rejected by this lender. The Mortgage Works also stipulates that if the ground rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years), the mortgage application may be rejected.

For more information on accelerated ground rents, refer to our blog.

 

Lenders Starck Uberoi works with Minimum unexpired lease term and ground rent provisions
Barclays Bank Lease term:

Mortgage term plus 25 years

 

Ground Rent:

Escalating ground rents are acceptable provided the amounts and terms are clearly stated and they comply with the following requirements:

·         Should not double more frequently than every 20 years

·         Should not continue to double after 125 years

·         Ground rent up to 0.1% of the current market value is acceptable

·         We may accept Ground rent up to 0.2% of the current market value subject to review

 

Halifax Lease term:

Minimum 70 years from the date of the mortgage.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

HSBC Lease term: All Residential leasehold properties must have more than 30 years remaining on the lease beyond the term of the mortgage at the outset.

 

All Buy to Let leasehold properties must have more than 35 years remaining on the lease beyond the term of the mortgage at the outset.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Nationwide Building Society Lease term: Our minimum unexpired lease term is 55 years.

– There must be at least 30 years remaining at the end of the mortgage term (regardless of the length of lease at the start).

 

Ground Rent: Ground Rents and event fees must be reasonable at all times during the term of the lease. If you’re unsure as to whether the terms of a lease are unreasonable or onerous, please refer the details to us for Valuer consideration.

 

NatWest Lease term: Mortgage term plus 30 years. For a Lifetime Mortgage, the term must be no less than 150 years minus the age of the Borrower.

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Santander Lease term:

You must report the unexpired lease term to us and await our instructions if:

1. the unexpired term assumed by our valuer is between 55 and 82 years, but the actual unexpired term differs by more than one year (whether longer or shorter); or

2. the unexpired term assumed by our valuer is more than 82 years but the actual unexpired term is less than 82 years; or

3. no valuation report is provided

However, we will not accept a lease where on expiry of the mortgage:

(i) less than 50 years remain and all or part of the loan is repaid on an interest-only basis: or

(ii) less than 30 years remain and the loan is repaid on a capital and interest basis

 

Ground Rent:

onerous ground rent provisions should be reported to us. In particular, provisions which allow for ground rents to be increased over and above the Retail Price Index (or other inflation-linked index) are considered to be onerous and are unlikely to be acceptable to the Bank e.g. multipliers such as doubling after fixed periods of less than 25 years; or fixed increases which are clearly above inflation expectation.

 

 

 

Other lenders Starck Uberoi works with Minimum unexpired lease term they accept
Accord Mortgages Lease term:

85 years from the date of completion of the mortgage.

 

Ground Rent:

* the maximum ground rent at the start of the lease term must not exceed £1000 a year;
* the ground rent must not be capable of being increased during the first 21 years of the lease, and not more frequently than every 21 years during the rest of the lease term;
* when the ground rent is reviewed, any increase must not exceed the higher of i) 100% of the ground rent payable immediately before the date of the rent review: ii) a figure increased in accordance with the equivalent percentage change in the Index of Retail Prices since the date of the previous rent review.

 

Aldermore Lease term:

60 years from the date of the mortgage, subject to 40 years remaining at the end of the mortgage term.
However, where the lease is shorter than 85 years from the date of the mortgage and this is not detailed in the valuation report, you should notify us so that we can ensure that there is no adverse effect upon the valuation.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Bank of Ireland Lease term:

Yes, subject to a minimum lease term of 85 years. The unexpired lease term must be at least the mortgage term plus 45 years.

 

Ground Rent:

The ground rent must remain reasonable at all times during the lease term, with unreasonable multipliers not allowed. Unreasonable multipliers of ground rent will not be permitted, for example, doubling every 5, 10 or 15 years. These must be referred to us and we will advise if our mortgage offer remains valid.

 

Bank of Scotland Lease term:

Minimum 70 years from the date of mortgage.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Birmingham Midshires Lease term:

Minimum 70 years from the date of the mortgage.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Bluestone Mortgages Lease term:

Mortgage term plus 30 years.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Buckinghamshire Building Society Lease term:

Minimum of 35 years unexpired at the end of the mortgage term

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Clydesdale Bank Lease term:

Mortgage term plus 30 years.

 

Ground Rent:

The Bank has no objection to a lease which contains a provision for a periodic increase of the ground rent provided that the amount remains reasonable throughout the term of the lease; any increase must be linked to the equivalent percentage change in the Retail Price Index (RPI) or a similar index. If subject to a multiplier, any multipliers which cause a doubling of rent every period of 15 years or less are not permitted.

 

Co-Operative Bank Lease term:

70 years unexpired at application, 30 years at the end of the mortgage term

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

target=”_blank”>Coventry Building Society Lease term:

A minimum of 70 years unexpired lease at completion for all scheme types apart from Lifetime Mortgages (Equity Release), which require a minimum unexpired term of 80 years at completion.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Darlington Building Society Lease term:

Minimum of 85 Years

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Family Building Society Lease term:

A minimum of 50 years must remain at the end of the mortgage term.

 

Ground Rent:

We will not lend on properties with onerous ground rent provisions. We consider ground rent provisions to be onerous where:

– the maximum ground rent at the start of the lease term exceeds 0.1% of the property value or £500 per year whichever is higher;

– the ground rent must remain reasonable at all times during the lease term. For example, it is acceptable for ground rent escalation to be linked to RPI (Retail Price Index)

– unreasonable multipliers of ground rent will not be permitted, for example, doubling every 5, 10 or 15 years.

 

Fleet Mortgages Lease term:

75 years unexpired at the commencement of the mortgage term but the unexpired term of the lease should not be less than 40 years at the scheduled end of the mortgage period

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Foundation Home Loans Lease term:

50 years unexpired at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Furness Building Society Lease term:

Minimum 85 years unexpired from completion, subject to not less than 55 years remaining at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Godiva Mortgages Lease term:

A minimum of 70 years unexpired lease at completion for all scheme types apart from Lifetime Mortgages (Equity Release), which require a minimum unexpired term of 80 years at completion.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Hinckley & Rugby Building Society Lease term:

There must be at least 85 years remaining on the lease when the mortgage starts and a minimum of 50 clear and unrestricted years remaining on the lease after the end of the mortgage term

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Kensington Mortgages Lease term:

85 years from the date of completion of the mortgage

 

Ground Rent:

Any ground rent which is currently at a level or, may reach a level referred to within the Housing Act 1988 (hence allowing a long lease to be treated as an AST) is NOT acceptable unless the Lease is varied or a suitable indemnity policy is put in place to protect us. The applicable legislation relates to leases with an annual ground rent of more than £250 (or over £1,000 for properties in London).

 

Kent Reliance Lease term:

A minimum of 50 years must remain at the end of the mortgage term

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Leeds Building Society Lease term:

85 years remaining from the start of the mortgage.

 

Ground Rent:

where the ground rent exceeds 0.1% of the property value you must report this to us and we will confirm whether the mortgage can proceed.

 

Lloyds Lease term:

Mortgage term plus 30 years subject to an overall minimum term of 70 years

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Masthaven Bank Lease term:

75 years at the start of the mortgage, 50 years at the end of the mortgage.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Metro Bank Lease term:

For residential and buy to let transactions, at least 50 years at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Monmouthshire Building Society Lease term:

80 years remaining on completion of the loan.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Mortgage Express Lease term:

The lease must have at least 25 years remaining at the end of the mortgage term

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Paragon Lease term:

The unexpired term of the lease must have a minimum of 85 years at the commencement of the mortgage term and a minimum unexpired lease term of 65 years must remain at the end of the mortgage term.

 

Ground rent:

Any onerous ground rent provisions should be reported to us. In particular, provisions which allow for ground rents to be increased over and above the Retail Price Index (or other inflation-linked index) are considered to be onerous and are unlikely to be acceptable to us e.g multipliers such as doubling after fixed periods of less than 25 years; or fixed increases which are clearly above inflation expectation.

 

Precise Mortgages Lease term:

70 years unexpired on the lease at completion of the loan advance.

 

Ground rent:

For owner-occupied, residential properties where the ground rent exceeds £250 (or £1,000 in Greater London), or where it may exceed this limit in the future, you must either have the lease varied to remove any risk of its construction as an Assured Tenancy under the Housing Act 1988 or obtain suitable indemnity insurance. This Part 2 requirement does not apply to rental investment properties (Buy to Let mortgage Offers).

 

Royal Bank of Scotland Lease term:

Mortgage term plus 30 years. For a Lifetime Mortgage, the term must be no less than 150 years minus the age of the Borrower.

 

Ground Rent:

if the ground rent exceeds £250 per annum (£1000 per annum for London properties) you must confirm that the terms of the lease in relation to the ground rent are acceptable. We can then approach the valuer to confirm whether the cost of the ground rent would affect property suitability and marketability.

 

Saffron Building Society Lease term:

There must be a minimum of 50 years unexpired lease remaining at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Sainsbury’s Bank Lease term:

The unexpired term should be no less than 85 years at the commencement of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Scottish Widows Lease term:

Minimum of 70 years unexpired at the start of the mortgage.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Skipton Building Society Lease term:

85 years from the date of completion of the mortgage

For Buy to Let cases:

– lettings must not breach any of the lessee’s covenants; and

– consent of the lessor to lettings must be obtained if necessary

 

Ground Rent:

Ground rent and other event fees must remain at a reasonable level at all times during the lease term with a minimum period of 10 years between any increases.

It is acceptable if the ground rent escalation is linked to the Retail Price Index (RPI) or a similar index.

Clauses providing for Ground Rent increases that ‘double’ (or more) the preceding level are not acceptable.

 

State Bank of India Lease term:

The unexpired term of the lease must have a minimum of 55 years at the commencement of the mortgage term and a minimum unexpired lease term of 30 years must remain at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Tesco Bank Lease term:

Mortgage term plus 30 years (subject to a minimum unexpired term of 55 years). Please contact us as detailed in 1.11b should this not be the case.

For new build properties, the following lease terms are not acceptable:

– The unexpired lease term on a new build flat is less than 125 years

– The unexpired lease term on a new build house is less than 250 years

If the lease cannot be amended to comply with the above, the case cannot proceed. Please advise us immediately where the case cannot proceed.

Contact point as detailed in 1.11b.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

The Mortgage Lender Lease term:

For Residential (owner occupied) mortgages the unexpired term of the lease should not be less than 40 years at the scheduled end of the mortgage period.

For Buy to Let mortgages the unexpired term of the lease should not be less than 50 years at the scheduled end of the mortgage period.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

The Mortgage Works (TMW) Lease term:

Minimum unexpired lease term is 70 years with 30 years remaining at the end of the mortgage term.

Ground Rents and event fees must be reasonable at all times during the term of the lease. If you’re unsure as to whether the terms of a lease are unreasonable or onerous, please refer the details to us for Valuer consideration. See the guidance below.

 

Ground Rent:

Ground Rents and event fees must be reasonable at all times during the term of the lease.

Will not accept if:

·         Starting Ground Rent is more than 0.1% of the property value

·         Ground Rent review period less than 5 years

·         Ground Rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years)

·         Ground Rent is compounded RPI

 

Tipton & Coseley Building Society Lease term:

Mortgage term plus 60 years with a minimum of 85 years outstanding at completion.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Together Money Lease term:

50 years remaining at the end of the mortgage term.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

TSB Bank Lease term:

Mortgage term plus 30 years subject to an overall minimum term of 70 years

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Virgin Money Lease term:

85 years at the time of completion. If it’s less, we require it to be extended on or before completion.

 

Ground Rent:

Periodic increases accepted if the amount of the increase is fixed or can be readily established and is reasonable.

 

Yorkshire Building Society Lease term:

85 years from the date of completion of the mortgage. Please ensure that you explain the implications of a short-term lease to the borrower.

 

Ground Rent:

no objection to a lease which contains a provision for a periodic increase of the ground rent provided that the amount remains reasonable throughout the term of the lease; any increase must be linked to the equivalent percentage change in the Retail Price Index (RPI) or a similar index. If subject to a multiplier, any multipliers which cause a doubling of rent every period of 15 years or less are not permitted.

 

 

I have found a lender who accepts short leases, can you recommend a solicitor to help with the conveyancing process?

Yes, Starck Uberoi Solicitors have extensive conveyancing experience and can help you along every step of the way. To find out more, read our blog on “Assigning the benefit of a Section 42 notice when buying a flat with a short lease”.

How Starck Uberoi can help

Our experienced mortgage and Conveyancing team will deal with your matter efficiently to ensure you get the best deal. Our diligent conveyancing solicitors work closely with the mortgage team to provide the most efficient service. For more information, please visit our mortgage or Conveyancing pages, or to book an appointment please call 020 8840 6640. We have offices located in Brentford, Ealing, Canterbury and London Belgravia. For an appointment at one of our offices, email us at solicitor@starckuberoi.co.uk or give us a call on 0208 840 6640.

 

Further Reading

About Raminder Uberoi

Raminder is head of the property department and his practice includes acquisitions, sales, financing, planning, development, landlord and tenant matters and corporate-related property transactions. He specialises in all aspects of commercial and residential property continually developing successful and practical client-focussed strategies. He draws on his wide experience to achieve tailor-made solutions for his clients’ commercial and financial needs.