Millions of UK households living in ‘rented’ homes have been warned

People who own a rental property have been warned about the ins and outs of their mortgage. Marc von Grundherr, director of Benham and Reeves, warned leaseholders of the hidden costs that could hit – despite the fact that “it would be cheaper to start with”.

“Ground rents can be a particular disincentive, and although they have been largely banned for most long-term residential rentals, they still apply to a large number of existing rental properties,” Mr von Grundherr said. “Additional management and service costs are also to be considered.”

Myron Jobson, senior personal finance analyst at Interactive Investor Jobson said: “Rental apartments are generally cheaper than freehold equivalents in similar locations – which can be a significant draw for first-time buyers or for those working on a tighter budget.” von Grundherr added: “Rental properties come with a number of other benefits such as modern living, shared facilities and great city center locations.”

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The Department for Leveling Up, Housing and Communities (DLUHC) estimates that there are approximately 4.98 million rented homes in England, of which 70% are flats and 30% are houses.

But he also warned that these fees could rise sharply, adding: “One of the main sticking points when it comes to renting is recurring costs – such as ground rent and maintenance charges – on top of the mortgage.” Jobson continued: “These fees can increase over time and sometimes unexpectedly, potentially creating a financial headache.

“The prospect of paying service charge and ground rent can also make the property less financially attractive in the long term.” David Hollingworth, director at L&C Mortgages, said: “The specifics of the tenancy terms could have an influence on which lenders will be able to lend.

“The unexpired term of the lease is one thing to look out for, as lenders will have a minimum expectation of the number of years left on them, which can vary. But if the remaining lease is short – under 85 years – it will make it harder to find a lender happy to lend without an extension.”

“If any of the ground rent or maintenance charges are deemed too high or the terms are such that they could escalate quickly and deter buyers, that could affect the lender’s decision,” he said.