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CML to tackle ground rent scandal

CML to tackle ground rent scandal

The Council of Mortgage Lenders (CML) is working on guidelines to tackle the ground rent scandal that has left some of those affected unable to sell their homes.

CML spokesman Bernard Clarke confirmed the organisation is putting together an advisory document that will ensure lenders are well informed about leasehold and better placed to make lending decisions.

It follows news that some property developers had been selling new-build houses on a leasehold basis with ground rents that increased sharply – some of them doubling every 10 years.

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As a result, some homeowners were left unable so sell their properties because lenders would be unwilling to offer a mortgage to prospective buyers.

Mr Clarke stressed that the CML document is not prescriptive and will serve a purely informative purpose.

“We are working on an information document setting out considerations for lenders about leasehold,” he explained.

“We are not drawing up guidelines for lenders. Lenders decide what their policy is on this. They must make an assessment of affordability within regulatory requirements.

He added that the document will “ensure that conveyancers and valuers ask the right kind of questions and find out the right information about leaseholds, and ensure it is passed to the lenders so they can make properly informed decisions”.

“We are working with builders and the Home Builders Federation on the issues that this raises and on the points that lenders talk to us about.”

In May, Nationwide became the first major lender to tackle the problem by introducing a new valuation policy for new build leasehold properties.

It imposed minimum acceptable lease terms on new build transactions of 125 years for flats and 250 years for houses, with the maximum acceptable starting ground rent on all new build leasehold properties limited to 0.1 per cent of the property’s value.

David Hollingworth, associate director, communications at London and Country Mortgages, commented: “The problem has been well highlighted now and many of the developers have moved away from the doubling clauses – but that does not mean we should not put a consistent approach in place.

“Lenders want to know at an early stage and want borrowers to understand the implications at as early a stage as possible rather than continuing down a path they ultimately decide against.

“Once we have a consistent approach, the quicker we are likely to see the standardisation of these kind of clauses.”

simon.allin@ft.com