Have you been wondering what purchasing a leasehold (also known also ground rent subjected) property could entail for your mortgage? There are multiple aspects that lenders pay attention to when granting financing for properties subject to ground rent. In this article, we list the most important ones, enabling you to know exactly where you stand if you’re looking to buy a house on a property subject to ground rent. Lenders pay particular attention to the following points when financing leasehold properties.

1. Has the leasehold been paid off?

The leasehold might have been paid off (for a certain timeframe). When that happens, you enter a new agreement once the leasehold period has expired. Has the land value increased? If it has, then this can result in a higher leasehold, and can therefore be detrimental to your financial position, which is why lenders look to limit their risk.

Risk-limiting by lenders

Lenders are of course also not that keen on a landowner setting a much higher ground rent if you still have a large part of the mortgage term left. For example, is the period of the leasehold set to expire within half the term of the mortgage? If so, it can be difficult for many lenders to complete a mortgage for a leasehold-subjected property. It is therefore important to be clearly aware of leasehold conditions in advance.

If the leasehold has been bought off in perpetuity

Paying off the leasehold in perpetuity usually does not generate any further problems in terms of obtaining a mortgage – after all, you have the perpetual right to use the land, without having to pay for it. One key thing to remember however: buying off the leasehold will not make you the owner of the land.

2. Is an annual leasehold due?

An annual leasehold has consequences for your maximum borrowing capacity. The rule of thumb is that you can borrow about 20 times less of the annual leasehold compared to a standard maximum mortgage. Is the leasehold € 1000 annually? If so, your maximum borrowing capacity will be adjusted downwards by € 20,000.

3. Is there a private leasehold status in place?

It is sometimes difficult to get a mortgage for a house that is subject to private leasehold; in that event, you are required to apply for a so-called ‘leasehold opinion’ (erfpachtopinie): this checks whether the landowner is reliable and whether the future leasehold is predictable. This allows the lender to assess whether there may be legal issues associated with the leasehold conditions. The notary will draw up this leasehold opinion.

Does the property have a municipal leasehold status? If so, the bank will assess the application without a leasehold opinion.

Are you looking at buying a leasehold-subjected property?

Is the home of your dreams subject to a leasehold obligation? Our advisors will be happy to help you and tell you what to look out for. That way, you will not encounter any surprises. Feel free to set up a no-obligation phone appointment.

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