NatWest – Important update to the UK Finance Handbook – Effective 6th November 2024

Posted on behalf of NatWest

We are writing to inform you of updates to the UK Finance Handbook effective from 6th November 2024. The following changes relate to ground rent provisions and should be noted when handling relevant cases:

Part 1:
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. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us.

Part 2:
1. Where ground rent provisions cause (or, during the term of the mortgage, are likely to cause) the lease to be treated as an Assured Shorthold Tenancy under the Housing Act 1988, this need not be reported to us if either:
a. the Lease can be varied to restrict the ground rent below the statutory level; or
b. a suitable indemnity policy is put in place to protect us (but please notify us about the policy in accordance with the Indemnity Insurance instructions)

2. 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 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.

3. Where it has not been possible to vary the terms of the lease so that we are appropriately protected, then we will accept a suitable indemnity insurance policy. You must be satisfied that the policy adequately protects the bank from the risks of the lease being deemed to be an assured shorthold tenancy and be able to provide a clean COT on the basis of the policy being in place. We do not review the terms of any proposed policy.

4. If the proposed security is a new, qualifying long residential leasehold property, covered by the obligations laid down in the Leasehold Reform (ground rents) Act 2022 you must check:
• that the ground rent is no more than “one peppercorn per year” or “peppercorn rent”; and
• that there are adequate provisions for repairs, maintenance, insurance etc. and an adequate maintenance charge.