buying the freehold versus ground rent

harryk_3

Hi I would appreciate any advice i have been paying ground rent on my house for the last 30 odd years but have just had a letter saying i can buy the freehold for 750 plus about 300 legal costs ionly pay £10 ayear I have abig garden does anybody think its worth it the lease is 999 yearswhat advantage would it be for me Any advice or opinions would be helpful
harryk

MarkyMarkD

So, they want £1,050 for the freehold, instead of which you pay £10 a year.

Rate of return on the £1,050 is around £50 per annum - so £10 a year is far better value.

Unless I am mistaken, most ground rents are fixed in nominal terms so the £10 won't increase - so it would be daft to buy the freehold IMHO.

A very long lease is worth as much as a freehold in resale value too.

We were in a similar position on our previous house. Investors buy up freeholds just so they can try to sell them (at many times their market value) to the owners. We said no.

harryk_3

thanks markymarkd
it makes sense when you say it like that
harryk

Ian_W

And if you read Mark's second paragraph, you can work out that £10pa would be about the earnings from a £200 investment - so they are seeking way too much.

We also have a long leasehold and the only disadvantages are that you have to, in theory at least, ask the f/her for permission to make some alterations/extensions - though it's blatently ignored by all around us with no difficulty to date. And if you remortgage the legals cost a little more because of the leasehold.

If you would like to own the ground below and the sky above, why not consider making them an offer - say, £200 + £200 for their legal costs. They can only say no and £10pa must be borderline uneconomic to collect by now.

All of which reminds me I must send in my £20 ground rent by the end of the month!!

MarkyMarkD

Correct me if I'm wrong, but can't they repossess your house eventually if you don't pay? I think that's another reason that investors buy these things which are, like Ian says, a lot of hassle to collect.

Astaroth

Also when considering the resell value - there are some buyers who simply do not want leasehold. You may not increase the asking price by having freehold but if you have more buyers interested it can drive up the ultimate sale value.

As others have said, there is no harm in negotiating and you can then choose to either buy or continue to lease.

geo555

Would your house be worth £1000 more by it being freehold?
There may be restrictions in your lease, so owning the freehold will mean you can do as you please with your house.

harryk_3

thanks to all for their opinions they have been verry helpful
harryk

DrGronod

We went through all this a couple of years ago - somebody bought all the leases for the street (£7 a year), and then sent letters outlining all the "restrictions" of being leaseholders to scare people, then tried to sell them. Firstly for £750, then a year later £500, then 6 months later £300. We held out but thought it useful to buy (for a couple of reaons) so ended up after some hard negotiation paying £250. I think a neighbour held out even longer for £200. But obviously some did buy at £750 in the first place and the guy made a mint (prob only bought at £100 in the first place we reckon - I think the going rate is 10-20 x the ground rent per property for things like this).

So - if a lower offer comes in it means they are keen to sell for their fast buck. Or ring up and try and negotiate if you want it quicker - there's lots of room to manoeuvre and they are in it just to get what they can. We discovered the guy had never been anywhere near our street (us in Sheffield, him in London) and therefore didn't know we were in a smaller property than others (he rather played himself into that one) so hence meant I could lower the offer quite easily! But he wouldn't have known anyway if I was being "creative" in my negotiations!

It is proving useful now as we are selling up - not the end of the world being on a long lease but makes things a little easier and attractive being freehold. Or if not selling then if you want to do something "resticted" in the lease like substantial alterations, or run a business from home etc.

Hope that helps.

DrG

MarkyMarkD

Good comments, Dr G.

Not sure why it mattered that your house was smaller though, if the ground rents were all an identical £7 per year.