Advice - Leasehold doubles every ten years - cost of buying?

deFoix

martinsurrey wrote: »

...with a 5% discount rate has a current value of £4,592

£295 per year, doubling every 10 years, for 80 years with a 5% discount rate has a current value of £26,116 (89 times the CURRENT ground rent).

Just out of interest why did you choose a 5% discount rate? Ground rent is relatively risk free from an investment point of view. The current 30 year Gilt yield is around 2% so I would argue that this is a more appropriate discount rate.

Therefore with the calcs above you'd be looking at a ratio of around 100 x current ground rent:eek:

deFoix

bobsaunders wrote: »

Hi Edddy,

Ideally i would like to know if anyone has got a fair valuation on the value of their leasehold based on the sub-clause.

Are we talking about an extra 10k? 15k? 20k? for the freehold, due to the clause of doubling ground rent.

I am aware online calculators only go so far - most place the value at around 5k (without the clause/unique circumstances).

Basically you need to do a Discounted Cash Flow (DCF) Analysis. You can do it by hand if you google...

Basically you sum up the entire string of cash flows over the period outstanding of the lease (including doubling) but discount the cumulative value by a Discount Rate (%) every year you sum.

The lower the discount rate the higher the value of the Freehold is to buy (or extend the lease).

deFoix

nicholbb wrote: »

Edit: Interesting (well was until I made this an essay):
https://www.theguardian.com/money/2016/nov/19/new-build-ground-rent-scandal-legal-battles-solicitors-negligence
Here it says:

"insurers for solicitors, who cover the cost of professional negligence claims, have accepted that a doubling of the ground rent every 10 years is an “onerous term”"

I think their opinion is BS. First of all there's no such thing in English contract law. Unfair terms would only apply to the sale of goods and the fact that a lease is a written document means there is really no defence.

However fully agree that it is the buyer's solicitors job to highlight these types of terms and if they don't they should be taken to the cleaners for compo.

deFoix

And why do people accept the MADNESS of this crucial information not being front and center in the Estate Agents' marketing?

Everyone needs to understand that you CANNOT put ANY sensible value on a leasehold property without knowing the time left on the lease and the ground rent and service charge particulars.

ALL potential buyers should be demanding this information upfront from the EAs!

This info should be listed on the website in bold colours next to the post code and floor area!

Rant over :-)

deFoix

Funny I just checked my RICs homebuyers report. In the valuation section the surveyor specifically states that he didn't inspect the lease and therefore indemnifies himself from anything it might say. He then valued my flat based on a fictional term and ground rent...

"For the purposes of this valuation we have assumed a lease with an unexpired term of at least 85 years or more, ground rent of £250pa, or less, and a service charge of no more than £1,500pa."

These RICs homebuyers reports are almost worthless.

Good job mine is 999 years at peppercorn on request!

martinsurrey

Boler1985 wrote: »

Just out of interest why did you choose a 5% discount rate? Ground rent is relatively risk free from an investment point of view. The current 30 year Gilt yield is around 2% so I would argue that this is a more appropriate discount rate.

Therefore with the calcs above you'd be looking at a ratio of around 100 x current ground rent:eek:

using the recent first tier tribunal decisions on capitalisation values, they are generally in the 6-7% range, so I was being prudent at 5%, but 2% is crazy low.


6%
http://decisions.lease-advice.org//app/uploads/decisions/act93/4001-5000/4208.pdf

6.5%
http://decisions.lease-advice.org//app/uploads/decisions/act93/4001-5000/4315.pdf

7%
http://decisions.lease-advice.org//app/uploads/decisions/act93/4001-5000/4311.pdf

http://decisions.lease-advice.org//app/uploads/decisions/act93/4001-5000/4135.pdf

Katiejane13uk

I have set up the national leasehold campaign Facebook group.
There is plenty of help and support in this group for leaseholds who have been miss sold their homes.
Your are.not alone.

Please join the fight