The bank joins Santander, Barclays and Nationwide on taking a tough stance against costly and sometimes hidden leasehold and freehold charges. TSB has gone a step further, however, and given brokers the parameters of its policy.
On properties built before January 2005, increasing ground rents are acceptable if they are linked to the Retail Price Index measure of inflation, or another similar index. If it is a doubling ground rent, it cannot double in less than a 20-year period. If the property was built after January 2005 it is subject to the same rules but the ground rent cost is restricted.
A maximum cap of 0.1 per cent of the market value of the property can be charged annually as ground rent for new-build houses. For new build flats and maisonettes and all second-hand properties, the cap is the higher of 0.1 per cent of market value or £250.
The same restrictions are applied to estate rent charges. The 2005 deadline is significant, said TSB, because homes built after this year are more likely to have onerous clauses.
Estate management fees or rent charges are costs paid by homeowners on a private housing estate to maintain, renew and repair the shared amenities and spaces that their local council has not adopted.
Some developers, however, are applying uncapped, escalating fees to freehold contracts, which are often sold on to a management company once the estate is finished.
TSB made the policy changes on 17 February in response to the Competition and Markets Authority’s investigation into leasehold practices in June last year. The bank said cases submitted before 17 February will be underwritten under the rules relevant to when they first applied, allowing the customer to complete their mortgage.
The bank said the changes reflected the need to protect both the borrower as well as the lender from excessive fees while pre-empting any difficulties in selling the house in the future.
Growing pressure on builders and agents
As more mortgage lenders impose tighter rules around ground rents and estate charges, there is mounting pressure on house builders and estate agents to be upfront with prospective buyers about the cost of leasehold and freehold fees and how they escalate.
Currently, fees are either not disclosed to would-be buyers until their solicitor requests information from the seller, or details are vague and taken on trust by estate agents.
Robert Sinclair, chief executive of Association of Mortgage Intermediaries, said: “It’s positive to see that TSB is being transparent about exactly what they will and won’t accept so that any issues can be spotted as early as possible.
“Leasehold and estate charge information should be provided before the mortgage offer is made.
“It is beholden on the estate agent or developer to grasp the nettle and be transparent from the start about what fees come with the property and how the terms are set out.”
Upfront about costs
By providing this information at the start of the home buying process instead of the end, borrowers can decide if they want to proceed with the purchase without spending money on broker and solicitor fees and a valuation. Furthermore, intermediaries can narrow their lender search depending on the terms and conditions of the leasehold and freehold contracts.
Beth Rudolf, director of delivery at the Conveyancing Association has been vocal in wanting to bring about change to the current system of leasehold and freehold charges.
She said: “We would encourage anyone looking to buy a property to ask the person marketing it for the material facts disclosure so that they are aware of anything which might impact their decision to buy it or their choice of lender.”
Under the Consumer Protection from Unfair Trading Regulations 2008 anyone marketing a property for sale should provide a disclosure of material facts at the point of advertising.
However, Rudolf said a survey carried out by the association in 2017 indicated that less than six per cent of people get the required information upfront. Analysis of the data indicated that this led to consumer detriment including stress and personal illness.
Mark Hayward, chief executive of the National Association of Estate Agents Property Mark, agreed that agents must tell prospective buyers about estate charges, escalating ground rent charges and also service charges.
Ideally, he said, the agent will have seen the leasehold information pack but these are difficult and expensive to obtain. Instead agents often have to rely on invoices provided by sellers and information provided on the property information questionnaire.
A spokesman for the Home Builders Federation said: “We continue to work with stakeholders to develop the process and ensure consistency in approach to how this is done.”
Earlier this month, the new housing minister Christopher Pincher said property owners will be given greater powers to challenge estate management fees charged by developers. The government is also planning to repeal legislation which could allow homes to be repossessed or have a lease placed on it for rent charge arrears.