Ground rent doubling every 10 years

joanne1971

well yes dropping out the purchase is a possibility. BUT we are are buying it for my mother in law that is elderly and needs to be near us. this option is near us and perfect to just move in. Other oprion (are more expensive -, i. e . bungalows -and need work)

joanne1971

the flats are in with mant large houses, it is a 'nice' estate, my best friend lives in a big house at number 27. so I dont how the numbets go - i will go and look tomorrow.

joanne1971

tthat was 'massive' houses not 'mant'.

Biggles

If you aren't sure whether a buyer would be offered a mortgage on these properties, why don't you apply for one? You can always turn it down if offered.

I must say that, if I was offered £10k to sell a lease that would only get me £5,600 over the next ten years (and it would take them 16 years to get £10k, assuming £350 for 4 and £700 for 8 years), I would take it fast. They won't be looking at Year 50.

TrickyDicky101

Biggles wrote: »

If you aren't sure whether a buyer would be offered a mortgage on these properties, why don't you apply for one? You can always turn it down if offered.

I must say that, if I was offered £10k to sell a lease that would only get me £5,600 over the next ten years (and it would take them 16 years to get £10k, assuming £350 for 4 and £700 for 8 years), I would take it fast. They won't be looking at Year 50.

Yes they will - this is similar to an amortising bond with a long maturity.

I work for an insurance company and we do look at investments such as these as kmmr previously stated. Such a package of ground rents sold on (ie securitised) has the added security that credit risk is reduced because you have an asset (ie the lease) to back eventual payment (failure to pay resulting in a charge being placed against the lease).

Insurance companies have very long term horizons so this kind of investment makes sense to them.

At 4% discount rate I calculate the NPV of the future GR payments to be c.£80k (assuming no lease extension). This doubling every 10 years builds in a very profitable return for the original freeholder.

Personally, I wouldn't touch this lease.

Ulfar

The best option is to get what it would actually cost in writing, then make a decision on whether to buy.

I certainly wouldn't buy with the ground rent as it is. Every time it doubles it will reduce significantly the number of people willing to buy the property. £350.00 a year is a lot for ground rent but once you get into £700.00 and then £1400.00 with the added service charge of £1440 a year people will not be interested.

Just think how much £2140 or £2840 funds in extra mortgage that a buyer could spend on buying a house. You are easily talking an extra £30-£40k, doesn't make the flat look like such a bargain.

kmmr

TrickyDicky101 wrote: »

Yes they will - this is similar to an amortising bond with a long maturity.

I work for an insurance company and we do look at investments such as these as kmmr previously stated. Such a package of ground rents sold on (ie securitised) has the added security that credit risk is reduced because you have an asset (ie the lease) to back eventual payment (failure to pay resulting in a charge being placed against the lease).

Insurance companies have very long term horizons so this kind of investment makes sense to them.

At 4% discount rate I calculate the NPV of the future GR payments to be c.£80k (assuming no lease extension). This doubling every 10 years builds in a very profitable return for the original freeholder.

Personally, I wouldn't touch this lease.

Nerdy question alert!

How did you come to £80k? It's 119 years remaining, my calcs put it at £111kish...

K

TrickyDicky101

I thought it was 94 years remaining? If I am wrong then this would have an impact

kmmr

I think it was 119 years remaining. I think maybe you stopped doubling the cost at £11,200, but I think there is one more double to £22,400 at the 50 year point. Although I am not sure whether 'doubling for 50 years' includes on the 50th year.

Anywho - a lot regardless!

SkyeKnight

joanne1971 wrote: »

I think the current lease is 99 years, so 94 to go.

It's 94 years left.