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Kim and Craig are selling their flat, but buyer’s bank won’t approve mortgage over £500 ground rent

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Penalised: Kim Healy and Craig Gibson

Kim Healy and Craig Gibson were desperate to move into their new home before the birth of their first child.

The young couple from Binfield, Berkshire, had planned to move from their two-bedroom flat to a three-bedroom house on the same new-build estate as Kim’s mother, so she could help with childcare following the birth in August.

But just weeks before they had hoped to move, their solicitor told them their buyer’s application for a mortgage had been refused because the ground rent on the flat was too high.

When Kim, 29, and Craig, 35, asked their housebuilder, Shanly, to reduce the annual payment from £500 to £300 — which the buyer’s lender would accept — the firm said they would need to pay more than £7,000.

‘I was appalled,’ says Kim. ‘Even our solicitor told me she was shocked by the amount. For our buyers to achieve a saving of £200 a year, it will cost us 35 times than amount.’

The couple are among tens of thousands of families trapped in unsaleable homes due to onerous ground rent. This is an annual charge lease-holders must pay the freeholder — the person or company that owns the land the property is built on — which is stated in the lease terms and conditions.

In worst-case scenarios, ground rent can double every ten years — leaving many homeowners unable to sell their homes.

Just two weeks ago, the Competition & Markets Authority (CMA) launched an investigation amid concerns that some leaseholders may have been mis-sold their properties, as they had no idea what the terms really meant.

But the scandal has sparked fears among banks that borrowers purchasing leasehold properties will be unable to sell their homes in the future.

As a result, many refuse mortgage applications if the ground rent is above a specified level — typically, around 0.1 per cent of the value of the property.

The Government was so alarmed by the scale of this leasehold abuse, it has pledged to ban developers from selling new-build houses on a leasehold basis unnecessarily. And for properties which continue to be sold as leasehold — because they share land rights, for example — ministers want ground rent to be set at a peppercorn amount which has a financial value of zero.

But these new rules will not help those people who already own leasehold properties.

It is for individual housebuilders to decide to help existing homeowners. Some, such as Taylor Wimpey, have agreed to change the terms of their leases free of charge. But others refuse to offer any support to leaseholders.

The young couple were told by Shanly that it would cost £6,150 to lower the ground rent from £500 to £300 a year.

The new ground rent works out at 0.1  per cent of the value of Kim and Craig’s £300,000 flat — the industry recommendation. On top of this amount, they would also have to pay Shanly’s legal costs of £1,250.

Kim, who works as a secretary, says: ‘I feel like I’m being held to ransom, as we can’t move unless we pay this fee. I feel sick with worry all the time.’

The terms in their lease state that their ground rent will increase every 20 years in line with inflation; and that the freeholder has the right to charge a ‘premium’ if asked to ‘amend’ the ground rent charges.

But Kim says their solicitor, whose firm was on a list recommended by Shanly Homes when the couple bought their flat, did not explain the terms.

The couple say they do not get anything in return for the ground rent, and have to pay an additional £1,300 annual service charge for maintenance of the flats. Meanwhile, they are still waiting for a number of repairs to the property to be completed by Shanly. Sebastian O’Kelly, of campaign group Leasehold Knowledge Partnership, says: ‘Who knows what appalling smoke and mirrors lie behind Shanly’s calculation to reduce the ground rent?

‘It drew up the leasehold contract, recommended the solicitor, and that solicitor did not spot the trap in the terms and conditions.

‘The company is exploiting this couple’s circumstances. The power to compensate them is in Shanly’s hands, yet its response is to charge them more than £7,000.’

After Money Mail contacted Shanly, it agreed to waive its legal fees as a gesture of goodwill following delays regarding snagging repairs. The couple are still negotiating; and hope they won’t lose the family house they want to buy.

A spokesperson for Shanly says: ‘We are transparent about ground rents at the point of purchase. Where customers have signed leases and subsequently wish to alter terms, we take a flexible approach and a fee is calculated based on the loss to the freeholder. We are regularly in discussion with large-scale lenders to ensure we are taking a fair approach.’

The developer says that Kim and Craig’s solicitor was on a list of approved firms provided in a pack when buyers reserve a home, and they were under no obligation to appoint them.

A spokesperson for the Ministry of Housing, Communities and Local Government says it has been clear that ‘exploitative and unfair’ leasehold arrangements have no place in the modern housing market. It recently announced an industry pledge to help existing and future leaseholders from onerous fees. 

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