Ground rent doubling

Aslia82 · 12 April 2017 at 9:37PM

Is it risky to buy a flat where the ground rent doubles every 10 years? It was built in 2009, with 125 year leasehold and the ground rent is currently £150.

AdrianC · 12 April 2017 at 9:43PM

So in 2019, it's going to £300/yr?

And in 2029, £600?

How long are you planning on living there?

Aslia82 · 12 April 2017 at 9:47PM

Yes, that's right. It doubles every 10 years until 50 years.
I don't know how long I would plan on living there, but the flat has already had one buyer pull out at the last minute because of this.

G_M · 12 April 2017 at 9:52PM

AdrianC wrote: »

...

How long are you planning on living there?

and who are you hoping to sell it to.......?

alex_163163 · 12 April 2017 at 9:52PM

Personally I'd avoid buying such a property.
Even if you don't think it's that much money, I think it would seriously put future people off buying it when you come to sell.

FIRSTTIMER · 12 April 2017 at 9:57PM

yes avoid -these type of leasholds are all over the news.
in 50 years the ground rent will be 9k - no one will want to buy and mortgage companies look for this too - AVOID

Aslia82 · 12 April 2017 at 10:02PM

Thank you, yes it looks like it best to avoid! Shame as it was a lovely flat otherwise.

Mickygg · 13 April 2017 at 3:11AM

It works out at an increase of about 7-8% each year. Yes high but not terribly high.
I would avoid as it of course mounts up. But that said for the first 30 years or so its not too high.

billy_goat · 13 April 2017 at 11:54AM

Mickygg wrote: »

It works out at an increase of about 7-8% each year. Yes high but not terribly high.
I would avoid as it of course mounts up. But that said for the first 30 years or so its not too high.

Not quite true - the rate of increase works out to be approximately 7.2% on the amount that you pay.

The cost of buying that lease out on day 1 (7% capitalisation rate) was 77.3 * the initial annual ground rent. Day 1 of year 10 it is 144.6 * the initial ground rent. So the value of the lease is also rising at around 7.2% per year.

So in this example the ground rent clause is the same as a £11600 loan which has a 8.4% interest rate, 1.2% you agree to pay in cash, and 7.2% you agree to have added to the loan.

After 30 years, not only has the £150 ground rent become £1200 per year, but the cost of buying the lease out has risen from £11600 to £74025... :eek: :eek: :eek:

PS: yes during the period between the doubling the real payments would vary in their percentage value and this is all approximate, but lets not be pedantic, these are horrible clauses that knock £10k's off the value of a property.