Buying a leasehold house - Advice please.

DoctorRN

Hi,

I wonder if I could ask the advice of the forum members. My wife an I are looking at purchasing a new build house in the north west. The price is ~£550,000 and is being sold as a leasehold property with a 999 year lease. The ground rent is £300 per annum initially and then rises. The calculation for the rise is previous rent x RPI and the divide by base index. One document I read seemed to suggest that the rent would be reviewed yearly, another implied every 10 years. There is also service charge which is payable to the management company RMG. That seems to be variable depending on how much they spend and no indication has been given as to a likely cost. They also do not explain how they split this cost among properties on the development, is it everyone pays the same, or is the proportion you pay dependent on the size of the property?

What do people think about this? Is anyone able to give me an idea of figures for the ground rent and service charge? what I don't want is to buy a property which I then cannot sell in the future because the rent and service charges are prohibitively expensive, as this would effectively make the property worthless.

Many thanks.

bouicca21

Ask for a copy of the lease and read it. It should contain all the answers.

da_rule

Your lease (or draft thereof) will provide information on whether the rent is reviewed annually or every 10 years. Until you know that there isn't a lot we can say.

The service charge is generally divided simply by the number of properties as this is used to maintain communal areas (grass verges etc) which everyone is deemed to have equal enjoyment of.

Have you thought about making an offer to buy the freehold too? Leaseold houses are a bit of a hot topic at the moment (I'm sure you've seen the BBC story).

davidmcn

DoctorRN wrote: »

Is anyone able to give me an idea of figures for the ground rent and service charge? what I don't want is to buy a property which I then cannot sell in the future because the rent and service charges are prohibitively expensive, as this would effectively make the property worthless.

You've just given us the figures for the ground rent! It goes up with RPI, which means the general rate of inflation rather than house prices, but is still probably reasonable (compared with the ones which go up exponentially irrespective of inflation). I take it the "review" just means "going with in accordance with the formula you've stated".

pinkteapot

That's weird - I have just read this article over lunch and came here to create a separate post about it!

http://www.bbc.co.uk/news/business-38827661

Apparently, builders are increasingly selling houses (not flats) as leasehold, then shortly after completion selling the leases to investment companies.

Read the story - in both cases features, the new owners could have bought the freehold from the developer for a small-ish amount (sub £5k) shortly after purchase, BUT, once the investment company bought the leases the price jumped massively (one woman now has to pay £32k if she wants to buy the freehold, rather than the £2.6k she could have paid Taylor Wimpey for it).

If your builder is doing the same sort of thing, ask what they want for the freehold and see that as part of the price of the house. If you're happy with the total, go for it. If not, negotiate further.

DoctorRN

Hi, I have seen the lease after a lot of persuasion. The lease just mentions the rent review date, but a seperate document says: "The lease will provide for the level of ground rent to be reviewed every 10 years on an upward only basis and increased in line inflation. The retail price index is used for this calculation. It is the lease that mentions the calculation. No value is given about the service charge, I understand they can't because it is dependent on works done, but wanted a ball park figure. The rent is calculated as above but if you multiply £300 by RPI (2.5% currenty) and then divide by base rate (currently 0.25%) you get £1230!

da_rule

Personally I wouldn't touch a leasehold house with a barge pole.

The clause you've stated also nicely covers that they don't have to put the rent down if the economy goes into recession.

bouicca21

I'd be wary of an increase every 10 years. I get worried enough about mine - but that only goes up every 30 years and I'm unlikely to still be around by then.

martinsurrey

DoctorRN wrote: »

Hi, I have seen the lease after a lot of persuasion. The lease just mentions the rent review date, but a seperate document says: "The lease will provide for the level of ground rent to be reviewed every 10 years on an upward only basis and increased in line inflation. The retail price index is used for this calculation. It is the lease that mentions the calculation. No value is given about the service charge, I understand they can't because it is dependent on works done, but wanted a ball park figure. The rent is calculated as above but if you multiply £300 by RPI (2.5% currenty) and then divide by base rate (currently 0.25%) you get £1230!

you are getting the calc wrong.

RPI is not 2.5% the INCREASE in the RPI is 2.5%

the RPI currently stands at 276.1 in 10 years time if it is 330 the ground rent would move to

330/276.1*300=£358

of course all this is is keeping up with inflation. Each year, as long as inflation is positive your ground rent is cheaper in real terms, and then in the 10th year it goes back up to £300 in real terms.

da_rule wrote: »

Personally I wouldn't touch a leasehold house with a barge pole.

The clause you've stated also nicely covers that they don't have to put the rent down if the economy goes into recession.

as its a 10 year review, IF the RPI is lower than 10 years ago, its a 10 year stagnation, and your ground rent not going down (but not going up) will be the least of our worries.

bouicca21 wrote: »

I'd be wary of an increase every 10 years. I get worried enough about mine - but that only goes up every 30 years and I'm unlikely to still be around by then.

As its an index linked increase it doesn't make much difference, its capped at £300 in real terms.

DoctorRN

Hi Martin,

Thanks for your response. So you say I multiply the initial rent (£300) by RPI (276.1) and then divide by the base index - what is this?

martinsurrey

DoctorRN wrote: »

Hi Martin,

Thanks for your response. So you say I multiply the initial rent (£300) by RPI (276.1) and then divide by the base index - what is this?

Base index will be the RPI at the date the lease was granted, so if the lease was granted in Dec 16 base would be 276.1

https://www3.hants.gov.uk/finance/retailpricesindexandconsumerpriceindex.htm

you can find historic RPI on google