Ground rent query - is this reasonable

Davidbrentssister

I put an offer in on a flat in February. I am renting and the flat is empty so I thought I would've moved in by now.

My solicitor has flagged a possible issue with the ground rent. She hasn't offered me any advice other than to say 'the point here is whether both you and future owners and lenders will view the ground rent as reasonable.'

The ground rent is increases by the previous year's rent and 0.08. These are my calculations

Year 1 - £300
Year 2 - £324
Year 3 - £348.92
Year 4 - £377.91
Year 5 - £408.14
it carries on like this and is pretty much doubled by 10 years when it's £599.70 and carries on like this by 25 years it will be £1900.90

I am not sure whether that is reasonable on not. The solicitor said I should read the mortgage lenders handbook online which I did. But didn't find it helped me.

We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable.

I just have no idea if this is reasonable. I can't afford a house where I live. And my current rent doesn't allow me to save enough so it's either buy a flat or stay renting (which is costing me £300 a month more than a mortgage will)

If anyone has any advice or can show me where I can find more info I'd be so grateful

davidmcn

I wouldn't say a fixed increase of 8% is reasonable - that could be significantly above property values (or inflation). It is at least predictable though.

Assuming your solicitor is also acting for your mortgage lender, are they prepared to sign it off to your lender?

bouicca21

So effectively it's doubling every ten years plus isn't static in between? That's pretty well the definition of unreasonable.

Brambling

I'm assuming there is also a yearly maintenance charge on top of that, will that go up yearly as well? It does depend how long you tend to live there, most people when buying will calculate how much a month the combined two will cost and wonder what they are getting for that money. I move out of a flat 13 years ago and I know the ground rent is still the same approx £350 a year and I live in the SE. For that price I'm also assuming it has a long lease.

Can you speak to other estate agents in the area and see if they know what other flats charge. I think there has been recent bad press about this doubling of ground rent and people having problems saling on but that could be just houses

Davidbrentssister

Thank you so much for your replies. It is so helpful to have other people's opinions.

The solicitor said they will have to report it to the lender but I am not sure if they will withdraw my mortgage offer.

The lease has 95 years left - so not overly long.There is maintenance on top of that. I would hope to leave about 5-8 years.

The current owner has a mortgage on it. In a way I would like it if the lender says no then it has made my mind up for me. But I am not sure whether to just pull out now. A crazy part of me feels bad for the vendor but you can't buy a flat out of guilt!

I should add there isn't much available in my budget at the moment. But again that is not a reason to panic. Flats do come up

Tom99

[FONT=Verdana, sans-serif]Doubling every 9 years is unreasonable but what is the current ground rent?[/FONT]
[FONT=Verdana, sans-serif]You used £300pa in your example but was that the original ground rent? [/FONT]

Davidbrentssister

I am not sure what the original ground rent was. I will ask the solicitor this.

The original lease was dated 1975 and a new lease (sorry if that is not the right phrase) dated 2015. The current ground rent is £370 (was £300 in 2015) - so it looks to has increased more than 0.08 in 3 years - I hadn't realised that until just now.

victoriavictorious

It might also be wise to consider how any future buyer / lender might view this situation, should you decide to sell up in years to come. A shortening lease and an ever-increasing ground rent may make the flat less appealing and more difficult to sell on.

need_an_answer

The problem that some purchasers might have in the future is the continual rising of the ground rent on top of presumably rising maintenance fees.

It is a personal choice thing but you might want to consider other properties where the ground rent remains at a static or low amount,over time these properties will become more appealing than the one you are considering.

It may well be that all the properties in the area you are looking have similar conditions but for example if a property has a static ground rent of say £50 per year it could easily make it more appealing than the one you are considering hence I can see why the solicitor is asking for yours and your lenders views.

I have a few properties with ground rent and whilst I appreciate that not all areas of the uk are the same and there could be regional differences the most I pay per year is £100 and that doesn't auto increase.

What you also need to be mindful of is ground rent paid is not reinvested into the property as such so there is literally nothing to see for what you pay.

bouicca21

I suspect the flat is now unmortgageable. The vendor probably needs to serve notice to renew the lease and pursue a statutory renewal which would reduce the ground rent to zero. This will cost far more than the renewal he/she did in 2015, which was obviously done on the cheap (lease was probably down to 55 years; I bet vendor thought that a short extension solved the mortgageabilty problem).



In theory you could bargain for the right of renewal to be passed to you and for a reduction in price to reflect the cost, but I am not at all sure that the mortgage lender will agree. I suspect the vendor really will have to do it him/herself, or wait for a cash buyer.

Davidbrentssister

bouicca21 wrote: »

I suspect the flat is now unmortgageable. The vendor probably needs to serve notice to renew the lease and pursue a statutory renewal which would reduce the ground rent to zero. This will cost far more than the renewal he/she did in 2015, which was obviously done on the cheap (lease was probably down to 55 years; I bet vendor thought that a short extension solved the mortgageabilty problem).

I hadn't made that connection at all but that makes perfect sense to me. All you comments have been really helpful. After considering everything I think the ground rent will make the flat difficult to sell in the future especially as the lease will be shorter.