Ground rent increase every 5 years with RPI - sound okay?

black_wings

davidmcn wrote: »

"Last published" because it is always a bit behind the times e.g. the last published figure at the moment is for March 2017. If they said they wanted the index figure for 22 April then we'd need to wait until some time next month for them to publish it. It's easier just to use the last published figure, as long as you do the same at the other date in your calculation.

Your sums are right, by the way.

Thanks very much for that David. I completely understand now regarding the 'last published' phrase; I think I was initially reading too much into it.
So I think that the terms seem like they are reasonable, although obviously no-one can predict future index rises but it seems to me looking at the index over the past 20 or so years that these terms would provide a lower or similar ground rent in 100 years time to a doubling every 25 year clause - which, it seems that people are somewhat happy to purchase.

black_wings

always_sunny wrote: »

can you not extend the lease via statutory right after 2 years and get the ground rent to nil?
Is it a new build? Sounds like very long lease and expensive too.

I'm not sure if I can extend the lease and haven't looked into how much that would cost via the statutory route but I'm guessing it's not something which I can afford.
And yes, it's a new build. HTB

always_sunny

black_wings wrote: »

I'm not sure if I can extend the lease and haven't looked into how much that would cost via the statutory route but I'm guessing it's not something which I can afford.
And yes, it's a new build. HTB

It more likely will cost a fair bit! When I was looking last year I saw couple of flats like that too and I didn't feel comfortable at all but I didn't understand much about leasehold and RPI.

I think there will be more and more pressure on leasehold properties to zero ground rent and any properties with high and increasing ground rent will be screened carefully.

black_wings

Cheers for the input folks, certainly gives us something to consider, if we want to progress with this purchase or not. Seeing as we know we will want to sell up in around 5 years.

elverson

Bear in mind that not all flats in London have significant ground rent (some have 'peppercorn' rent of £1). Have a look at 'share of freehold' flats.

black_wings

elverson wrote: »

Bear in mind that not all flats in London have significant ground rent (some have 'peppercorn' rent of £1). Have a look at 'share of freehold' flats.

Thanks. I appreciate there are many flats with little or not ground rent and that's where my concerns lie somewhat in that when we go to sell we may be up against other available properties with no ground rents which will obviously be favourable to a purchaser.

billy_goat

black_wings wrote: »

Hello folks,
As live inside the m25 we cannot afford a house so leasehold flat is our only option. We have just received the following details for our ground rent - should we be alarmed by this or does it sound okay? My main concerns are all the negative press recently regarding ground rent and worried about the future resale of the flat. We plan to only live in the flat for about 5 years so resale value is important to us. The lease is for 250 years and the starting ground rent is £250. The ground rent will increase every 5 years linked to RPI. Is this worse or better than increases every 10 or 20 years or does it not matter how often it is reviewed?

Any thoughts welcomed

Extract from the contract

"Reviewed rent shall be calculated by the following:
R x A/B
R= £250
A= most recently published RPI
B= index figure last published at the base date"

This isn't so bad, unless you hit some hyper inflation. 1970 to 1990 you would have hit a 6 fold increase in the ground rent..! :mad:

billy_goat

SalsaDanca wrote: »

Traditionally, ground rents are doubled every 25 years. That's equivalent to an increase of just over 2.8% per year, which is about the same as inflation.

The problems that have been reported in the press recently are with ground rents that are doubled more frequently than once every 25 years. Doubling every 20 years is equivalent to an increase of 3.5% per year, which is a bit cheeky but probably still acceptable. Shorter periods are very expensive and likely to put off future buyers. Doubling every 15 years = 4.7%, 10 years = 7.2%, 5 years = 14.9%.

This isn't correct - these values should be calculated off the underlying value, not the ground rent payout.