Ground Rent Raising To £4,000???

G_M

It's nothing like as bad as doubling every 10 years. Having said that,personally I'd avoid if there were other properties I could go for.

Yes, the gov seems to be planning action, though whether it will be retrospective is dubious.

https://www.theguardian.com/money/2016/dec/20/housebuilders-must-halt-leasehold-sales-of-houses-compensation

strawberries1

martinsurrey wrote: »

its £4000 from 2119, which is 100 years time.

£1 in 1917 is equivalent to £80 now.

so if the next 100 years is similar to the last 100 years that £4000 ground rent will look like £50 a year does now.

(of course we had periods of great inflation and a few wars, but shows the power of compound inflation)

I wouldn't worry about a doubling every 25 years clause.

I see your point Martin but none will pay that £4000 without first having to renew it before 2059 when the remaining years will be 80yrs. I can't find a calculator for GR with incremental increase but the average is £1000pa I think. Maths isn't my favourite subject.

I'll appreciate help with an estimate of how much it'll cost to increase the term under the statue to make it a peppercorn rent or buy the freehold.

strawberries1

AdrianC wrote: »

So you're going to let a few hundred quid costs push you into something you know is a bit duff...?

Not simply because of the fees but cos it's taken me years to find a property and progress to this stage.

strawberries1

nicmyles wrote: »

It all depends how long you envisage staying there.

I bought a leasehold flat with an almost identical ground rent provision and time left on lease in 2012 and then sold it last year. Both I and my buyer had mortgages - lenders were unconcerned.

I knew when buying it that I was going to sell it within five years and on balance felt that the risk of the clause having any impact on me was low. Which was how it turned out.

The property is near a crossrail station so I wonder if the appreciation in a few years will help erode any risks.

billy_goat

strawberries1 wrote: »

I see your point Martin but none will pay that £4000 without first having to renew it before 2059 when the remaining years will be 80yrs. I can't find a calculator for GR with incremental increase but the average is £1000pa I think. Maths isn't my favourite subject.

I'll appreciate help with an estimate of how much it'll cost to increase the term under the statue to make it a peppercorn rent or buy the freehold.

Just quickly looking into the calculations behind this - the amount payable = ground rent + reversion fee + marriage fee (if applicable).
Given a 122 year ground rent, starting at £250, doubling every 25 years, which means the final 22 years will be payable at £4000 and using a discount factor of 6.75% (as per some article on historical LVT data) - this would be worth £4,842.94 today.

The reversion value, given a discount rate of 5% would work out to be £474.14 on a property worth £250,000. This assumes that you extend the lease at 122 years to a period of 212 years (the value of the lease today is £478.87, the value of the 90 year extended lease is £4.74).

The total cost for extension would therefore be in the region of £4,842.94 + £474.14 + Solicitors fees.

Please be aware that these calculations are heavily reliant on the discount rate used, the period of the lease and the value of the property. There may also be numerical errors in the above and so this should not be taken as advice or guidance, merely an illustration of one method of estimating the cost.

ognum

How long are you planning on living there? If the ground rent is putting you off it will also put off those who will buy from you.

strawberries1

billy_goat wrote: »

Just quickly looking into the calculations behind this - the amount payable = ground rent + reversion fee + marriage fee (if applicable).
Given a 122 year ground rent, starting at £250, doubling every 25 years, which means the final 22 years will be payable at £4000 and using a discount factor of 6.75% (as per some article on historical LVT data) - this would be worth £4,842.94 today.

The reversion value, given a discount rate of 5% would work out to be £474.14 on a property worth £250,000. This assumes that you extend the lease at 122 years to a period of 212 years (the value of the lease today is £478.87, the value of the 90 year extended lease is £4.74).

The total cost for extension would therefore be in the region of £4,842.94 + £474.14 + Solicitors fees.

Please be aware that these calculations are heavily reliant on the discount rate used, the period of the lease and the value of the property. There may also be numerical errors in the above and so this should not be taken as advice or guidance, merely an illustration of one method of estimating the cost.

Thanks Billy Goat. I know your figures are not cast in stone but are you saying perhaps it might not cost more than £10,000 to get a peppercorn rent if I extend in the next few years?

How do I go about getting a precise calculation?
Shall I ask my sols to ask the seller's sols or do I need a surveyor to do this?

strawberries1

ognum wrote: »

How long are you planning on living there? If the ground rent is putting you off it will also put off those who will buy from you.

About 10years to 15yrs.
So I'll like to be able to consider how much it'll cost to buy part of the freehold (my solicitor said it'll be very expensive cos they own all the properties in the close. I think she means they own the freehold of all the maisonettes) or extend to a peppercorn rent.

billy_goat

strawberries1 wrote: »

Thanks Billy Goat. I know your figures are not cast in stone but are you saying perhaps it might not cost more than #10,000 to get a peppercorn rent if I extend in the next few years?

How do I go about getting a precise calculation?
Shall I ask my sols to ask the seller's sols or do I need a surveyor to do this?

So there is no such thing as a precise calculation. However, you can view past decisions and get a fair idea from these,

LON/ooBH/OLR/2016/1431
In this instance a discount rate of 7% was used on the ground rent, and 5% on the property.

LON/ooAX/OLR/2o15/1676 and LON/ooAX/OC9/2015/0432
In this instance a discount rate of 6.5% was used on the ground rent, and 5% on the property.

LON/OOAS/OLR/2o15/1275
In this instance a discount rate of 10% was used on the ground rent, and 5% on the property.

You get the idea...any 'valuer' is just going to be making it up as they go along by guessing what I tribunal would deem reasonable. There may also be an additional amount due to the increased value of the flat having a long lease, but I suspect with a 122 year lease this will be negligible. The maths behind the calculation does not change - it is simply a question of what discount rate you apply, though for reversion 5% seems the norm, the ground rent capitalisation discount tends to vary.

So yes, that is precisely my thought regarding <10k for extension - even if you went via the tribunal!

strawberries1

billy_goat wrote: »

So yes, that is precisely my thought regarding <10k for extension - even if you went via the tribunal!

Thank you. I'll have to consider cost to buy a share of the freehold or liaise with the other 3 property to buy the freehold.