New Build Ground Rent - Is this reasonable?

Odie85

Hi all,

I am looking to buy a new build leasehold (125 years) property and have received a draft copy of the contract. The initial ground rent was stated as £250 per year.

During the sales process I was told that the ground rent would be reviewed every 21 years and that it would likely be in line with the average UK salary or something like that.

From the draft contract it states that the ground rent will in fact be doubled every 21 years, up to a maximum of £8,000 per year and then stay at that level until the end of the lease term. (so increase from £250, to £500, to £1000, to £2000, to £4000 and then finally to £8,000)

Although I don't believe I'll keep the property for 21 years, let alone the full term of the lease, does this level of increase seem excessive? Or is this now normal for new builds? Is it likely to affect the resale value of the flat?

Thanks in advance for any help and advice!

- Odie

theartfullodger

During the sales process I was told that the ground rent would be reviewed every 21 years and that it would likely be in line with the average UK salary or something like that.

From the draft contract it states that the ground rent will in fact be doubled every 21 years,

Three points maybe worth mentioning....

a) You've established that what you were told & what the contract says are two different things. No surprise there. The salesman lies.. Only interesting question is, what else is he lying about (the list is too long... )
b) You say you expect to stay 21years... The average length of stay in mortgaged property in UK is 7 years. Yes, 7 years... So if you do do 21yrs you'll be in a very small, small minority...and may be surprised how soon you sell it in reality...
c) If you were selling property with ground rent & owned the ground rent would you also start low & then rack it up & rack it up later?? If you are in the ground-rent business you are looking long, long-term...

Make a really, really silly low offer. If the salesman doesn't cry you bid too high!

Cheers!

Lodger

Henry_Hoover_2

Make a really, really silly low offer. If the salesman doesn't cry you bid too high!

Haha! I like it!

ciano125

If you do buy it, don't be surpised if in a few years the person/company who you pay the ground rent to come and say "would you like to buy the freehold now for £X,000". It's just another way of getting more money out of you. I wouldn't touch one personally.

Odie85

Thanks for advice. I've actually already reserved the flat and am progressing towards contract exchange having agreed a price.

I don't expect to keep the flat for the first 21 years so it shouldn't be a problem for me, but I was more concerned as to whether this is a common increase rate for new build leasehold properties in England these days and whether it will have a negative effect on the resale value 5, 10 or 15 years down the line.

Cheers!

theartfullodger

Ah, flat eh...

What are the service charges?? Do you think they will stay similar???

Cheers & good luck...

Lodger

Odie85

The service charges are currently set at around £1000 per year (not including the ground rent) but including buildings insurance.

Richard_Webster

If you do buy it, don't be surpised if in a few years the person/company who you pay the ground rent to come and say "would you like to buy the freehold now for £X,000". It's just another way of getting more money out of you. I wouldn't touch one personally.

Yes, and because of the increasing ground rent the figure will be higher than otherwise.

It may not matter for a few years but i suspect people will get more savvy about this kind of thing in the future and flats with really steep and frequent increases may become more difficult to sell.

Odie85

Thanks for the reply Richard.

I guess in some ways it's maybe (maybe!!!) 'better' that the increases over the entire lease term are set out in the contract up-front, but I guess my question is whether these are 'normal' levels of increase in the current new build market? They seem very steep to me, although in real terms it shouldn't affect me directly during the time I expect to keep the property.

ciano125

I've never seen one as steep as that, and has been mentioned above, it will impact on value further down the line. Think about it, if you were going to buy a car and went to look at one which you knew would cost you £1000 in repairs each year for the next five years, and then went to look at another (same model for arguments sake) that you knew would cost you £200 in repairs per year for the next five years, and they were both priced the same, which would you buy?

Silly example I know, but the principle is right. That ground rent is EXPENSIVE and WILL impact upon value further down the line (possibly within the next five years, probably within the next ten, certainly within 15 years.)

Richard_Webster

I think the thing is that in a rising market people didn't look at the size of the ground rent - they just went ahead and bought a new flat.

Builders are looking at maximising what they can sell the freehold on for. The people who buy them are often not very friendly either - so I would always be very wary about buying a new flat for that reason alone.

I've seen plenty of £100/£200/£400/£800/£1600 increases every 25 years over a 125 year lease but that mentioned is somewhat higher.