Ground rent bombshell at 11th hour

Blackavar

My friend is in the process of buying an apartment and as a first time buyer has experienced a massive learning curve.
Mortgage agreed and ready, on final visit to solicitors, it was pointed out that the ground rent, currently £250 doubled in 3 years time and doubles every 10 years after that.
He doesn't intend living there for more that 4 years so no personal big impact but a massive concern for prospective buyers when he sells.
Have been reading up on this ground rent scandal and although legislation may fix this state of affairs it probably won't be applied retrospectively.
He has 2 days to buy or pull out, losing money on fees already paid but potentially avoiding a resale nightmare further down the line.
So would you buy or decline?
Thanks for any input.

HWG

Run away.
The ground rent will soon be more than the value of the house, which will render it worthless.

How did the lender miss that? The flat should be unmortgageable.

Tom99

[FONT=Verdana, sans-serif]Doubling every 10 years is an inflation rate of about 7.2%pa and in 4 years time the rent will be £500 pa. Unless it is a multi million £ flat I think that is definitely going to put people off.[/FONT]
[FONT=Verdana, sans-serif]How long has the current owner owned the flat? If over 2 years they could serve a lease extension notice and assign it to you friend to take forward, but the cost of a lease extension would obviously reflect the value of the doubling rent.[/FONT]
[FONT=Verdana, sans-serif]What is the value of the flat and the unexpired term of the lease?[/FONT]

Crashy_Time

HWG wrote: »

Run away.
The ground rent will soon be more than the value of the house, which will render it worthless.

How did the lender miss that? The flat should be unmortgageable.

Unlikely if it is paid yearly? The "Re-sale problems" may be there anyway down the line if the property bubble finally pops, but there might be some government legislation re. ground rent in the future. If he is having second thoughts anyway this is just a good excuse to pull out IMO.

[Deleted User]

Run, this could be the costliest mistake of his life.

Blackavar

140 years unexpired on lease. Value around £170K. Really loves the property so no prior second thoughts. Has also bought bought new items to take to his first new home and is devastated to find this out on the day of final signature.

[Deleted User]

He needs to not think about today and what he has bought but worry about tomorrow and the implications longer term.


I'd far rather lose a few £000's today than be saddle with a nightmare potentially costing tens of thousands later on down the line and it isn't just ground rent what about service charge cost now and in the future. They could also escalate at any given rate.

Tom99

[FONT=Verdana, sans-serif]He will be able to buy out the ground rent in 2 years time so if he likes the flat he could work out now roughly how much that will cost and make sure the price he is paying now reflects that cost as a discount.[/FONT]

Blackavar

It looks quite an involved process to try and buy the freehold on a flat and I'm sure he wouldn't want to take this on as a young first time buyer.

[Deleted User]

How do you ' buy out' the ground rent ?


Do you mean he buys the Lease from the Freeholder, if the Freeholder is willing to sell, if he hasn't sold it on to someone else.


It is simplistic to say he can just buy it in two years. Many others have fallen foul of this kind of advice.

hazyjo

Blackavar wrote: »

Has also bought bought new items to take to his first new home and is devastated to find this out on the day of final signature.

No excuse - he shouldn't have done that anyway, so it's an expensive lesson to learn. It could have fallen through because of ANY reason.


I would pull out or get the vendor to sort it as part of the sale (if poss).


It's SO hard to pull out of a purchase when you love it, but just because this isn't something he can 'see' as such (like subsidence or a collapsed roof), he shouldn't take it any less seriously. It will have a huge impact on future any sale.