Ground rent bombshell at 11th hour

Tom99

[FONT=Verdana, sans-serif]Someone may be able to check my maths but my calculation shows that the ground rent will be £8m a year in 140 yrs time.[/FONT]
[FONT=Verdana, sans-serif]If I am right and you discount the rising ground rent at 5% pa you get a lease extension price of over £400,000.
Sound like he should pull out now.
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xylophone

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.

This only applies in N Ireland?

https://www.finance-ni.gov.uk/articles/how-you-can-redeem-your-ground-rent

https://www.gov.uk/guidance/rentcharges

‘Ground rent’ is a similar concept, but is only applicable to leasehold property and cannot be redeemed. See more information on ground rents and other charges in leasehold property.

Tom99

xylophone wrote: »

This only applies in N Ireland?

https://www.finance-ni.gov.uk/articles/how-you-can-redeem-your-ground-rent

https://www.gov.uk/guidance/rentcharges

‘Ground rent’ is a similar concept, but is only applicable to leasehold property and cannot be redeemed. See more information on ground rents and other charges in leasehold property.

I was refering to a lease extension, ie add 90 years to the term and reduce the ground rent to a peppercorn, but see my comments above about the likely cost of that.

LdnFtB

Blackavar wrote: »

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.

Wages and house prices would also need to double every ten years to mean that any subsequent purchaser would be able to afford the flat. I'm not sure the Bank of England would tolerate inflation of 7% a year.

Ground rents over the length of the lease:
Years 1-3: £250
Years 4-13: £500
Years 14-23: £1,000
Years 24-33: £2,000
years 34-43: £4,000
Years 44-53:£8,000
Years 54-63: £16,000
Years 64-73: £32,000
Years 74-83: £64,000
Years 84-93: £128.000
Years 94-103: £256,000
Years 104-113: £512,000
Years 114-123: £1,024,000
Years 124-133: £2,048,000
Years 134-140: £4,096,000

Tom99

LdnFtB wrote: »

Wages and house prices would also need to double every ten years to mean that any subsequent purchaser would be able to afford the flat. I'm not sure the Bank of England would tolerate inflation of 7% a year.

Ground rents over the length of the lease:
Years 1-3: £250
Years 4-13: £500
Years 14-23: £1,000
Years 24-33: £2,000
years 34-43: £4,000
Years 44-43:£8,000
Years 54-63: £16,000
Years 64-73: £32,000
Years 74-83: £64,000
Years 84-93: £128.000
Years 94-103: £256,000
Years 104-113: £512,000
Years 114-123: £1,024,000
Years 124-133: £2,048,000
Years 134-140: £4,096,000

Which discounted at 5% gives a lease extension price of over £230,000 now.

Blackavar

It's capped at 50 years and as mentioned this isn't an issue now but may be when it comes to be sold.

Tom99

Blackavar wrote: »

It's capped at 50 years and as mentioned this isn't an issue now but may be when it comes to be sold.

[FONT=Verdana, sans-serif]If the ground rent was capped at £8,000pa then discounted at 5% would be about £40,000 premium.[/FONT]
[FONT=Verdana, sans-serif]Whoever buys it in 4 years time will want to reflect that in the price.[/FONT]

Blackavar

Just noticed that this is Taylor Whimpey who it seems have a track record in this type of doubling every 10 years contract.
He is still undecided as heart and head are in conflict. Really loves the place and has put so much effort in arranging mortgage and all the rest of the stuff that go into buying a place. But when it comes time to sell.......

Tom99

[FONT=Verdana, sans-serif]Did the mortgage valuation reflect the doubling ground rent every 10 years? If your friend has only just been informed of this it is quite possible that the valuation surveyor has made some other more favourable assumption or been misled as to the rent review provisions.

[/FONT] [FONT=Verdana, sans-serif]Your friend must assume that any future purchaser will take into account the rent commitment and put a value/discount on it because it is clearly punitive.

[/FONT] [FONT=Verdana, sans-serif]Your friend then need to reflect this discount in the price he is paying now.

[/FONT] [FONT=Verdana, sans-serif]This capital value of the ground rent is very sensitive to the discount rate used. For example using a 7% discount rate rather then 5% would reduce the value by about 50%.[/FONT]

AnotherJoe

Places like this are becoming unmortgagable. He should walk because either resale will be impossible or he’ll lose tens of thousands on resale.