When applying for a mortgage on a leasehold property, lenders apply stringent scrutiny to the terms of the lease and focus on the safety documents of the property. Below are some of the most common – and often overlooked – issues that can delay or render your mortgage application to be rejected when buying a leasehold property. We would like to highlight some of the most important issues in this article.
Ground Rent
Onerous Ground Rent Review Clauses
Leases that include frequent ground rent reviews (e.g., every 5 years) with ambiguous or uncapped increases are a significant concern for lenders.
For example, Nationwide Building Society will not lend if ground rent review terms allow increases every 5 years or where ground rent doubles periodically without reference to inflation.
Clauses that cause ground rent to double every 10 or 20 years—rather than tracking inflation via an index like RPI or CPI—are increasingly viewed as unfair. In response, the Leasehold Reform (Ground Rent) Act 2022 banned such clauses for new leases, mandating peppercorn (Nominal) ground rent for most new agreements.
But when you are buying the existing lease, you should be aware of those points especially.
Excessive Ground Rent
Ground rent exceeding £250 per annum outside London or £1,000 within London is typically seen as a red flag. Many lenders impose strict caps, fearing future affordability issues for borrowers.
For instance, with Nationwide, the maximum acceptable ground rent is 0.1% of the property’s value and must not exceed £250 p.a. outside London or £1,000 p.a. in London. Barclays may also decline the offer if the ground rent is considered excessive relative to the property’s value.
When there is an excessive ground rent, the purchase or the lender will usually ask for a deed of variation or an indemnity insurance to prevent or reduce such risk — this can delay the transaction and increase legal costs.
Lease Term
Short Remaining Lease Term
Lenders are wary of short lease terms because they reduce the security value of the asset and increase future extension costs. Once the lease drops below 80 years, lease extensions become significantly more expensive due to the marriage value rule, as defined in Cadogan v Sportelli [2007].
For example, Halifax requires for a Lease to have at least 70 years remaining at completion.
You may need a lease extension when you are purchasing a property with a short remaining lease, and it will cause more fees and time for you to deal with it. If you just leave it, when you sell the leasehold property you may be questioned about it from any potential buyers should they require assistance from a lender.
Service Charge
Unreasonable Service Charges
High or disproportionate service charges, especially if they’re not consistent with comparable developments, can raise lender concerns. The Arnold v Britton [2015] UKSC 36 case affirmed that even harsh contractual obligations could be enforced if clearly written, emphasising the importance of carefully reviewing service charge terms.
For example, Barclays may decline applications where service charges seem disproportionate without good reason.
You may also notice that the service charge is really important when you become the owner of the property. Usually, late payment will result in a breach of the lease, which may lead to more serious legal consequences. Also, it may cause more issues when you are going to sell the leasehold property.
Freeholder issues
Absent or Unknown Freeholder
A freeholder who is unreachable or unknown can present practical and legal difficulties, especially when a lease extension or building repairs are required. Such uncertainty may lead lenders to reject the mortgage application outright.
Property safety documents
Cladding and EWS1 Form Issues
Following the Grenfell Tower tragedy, lenders now routinely request a valid EWS1 form for flats in buildings with cladding. Properties without proper certification are frequently deemed unmortgageable. In some instances, entire buildings have seen their property transactions fall through due to unresolved cladding concerns.
Properties with “B2” rating (combustible materials without mitigation) are often rejected for lending. This is important for some buildings that have been built for a long time, and if there are any potential remedies, you as the owner of the leasehold property may be required to contribute, as well as affecting your lender’s valuation of the property for a loan.
Fire Risk Assessment Concerns
In addition to the EWS1 form, Fire Risk Assessments are becoming a key focus for lenders, particularly in leasehold purchases involving flats within high-rise or converted buildings. If a building’s fire risk assessment identifies serious hazards—such as defective fire doors, obstructed stairwells, or overloaded electrical systems—this may render the property unmortgageable.
Even buildings that pass EWS1 requirements may still face scrutiny if fire safety reports rate the building as “high risk” or identify issues requiring urgent remediation. In some cases, lenders may delay or withdraw offers until risks are addressed.
Conclusion
As above, those are the common points which you as a buyer and borrower might face when purchasing a leasehold property with help of a mortgage. You shall consult legal professionals to review the lease terms and investigate issues around rent, service charges, and building safety thoroughly. Overlooking any of these areas can lead to mortgage application refusal.
We strongly encourage you to reach out to us if you have any questions, and we are here to help as always. Speaking to a qualified mortgage advisor or solicitor can help you make the best choice for your situation.
Have questions? Get in touch today!
Call us on 020 7928 0276, phone calls are operating as usual and we will be taking calls from 9:30am to 6:00pm.
Email us on info@lisaslaw.co.uk.
Or, use the contact form on our website. Simply enter your details and leave a message, we will get right back to you: https://lisaslaw.co.uk/contact/
For more updates, follow us on our social media platforms! You can find them all on our Linktree right here.
