Ground Rent increases every 21 years. HELP

abi_93

Hi,
I am very new to moneysavingexpert forums, so Hi! 👋 I need some advice.
I am a first time single buyer looking to purchase a flat down south (Basingstoke) and I have gone through the whole process. Fell head over heels for a flat for £195k in a great location but the lease (109yrs) is owned by Taylor Wimpey, who have been in news for all sorts of ground rent scandals. All the paperwork is ready to go, except the ground rent review clause, which is such a confusing clause but I think it states that the ground rent will be reviewed every 21years in line with the value of the whole block flats in comparison to the value of the block initially as a percentage.
Now the property has 6 flats and was built in 2002 and sold for c. £140k, the ground rent has been £125pa since. The next review will be 2023, at which point I will be looking to sell.
This is with solicitors and has been referred to bank as Taylor Wimpey have refused to make any variations to the clause.

Is this a standard clause?
Has anyone bought a flat with this clause and struggled to sell?
What would you do if you were me?

SmashedAvacado

It is a very unusual clause indeed.
It has been referred to the bank because it is an unusual clause.
that means if things stay the same, any buyer is likely to have this clause referred to their bank
not all banks will take the same view
the bank of your buyer when you come to sell might say that they are not comfortable with it

that all being said, there is proposed legislation to change the way that ground rents work. it is not clear what the legislation will do. I wouldnt rely on this coming in any time soon but if you take the risk then it is possible that in any event, the clause wont operate in the manner you expect.

jonnygee2

it states that the ground rent will be reviewed every 21years in line with the value of the whole block flats in comparison to the value of the block initially as a percentage.

I don't know how normal this is but I wouldn't sign it.

It ties your ground rent to the future trends in the property market. This is very risky. If there is a significant upturn in property in the years before the review, then the ground rate could get locked in at a very high rate for 21 years and the property could lose a lot of value.

If they won't budge I would not buy with this clause.

SmashedAvacado

Having looked at how the clause works, it maybe isnt so bad.

To know how this impacts you - if your flat is worth 250k in 21 years (having gone up from 140k) after the grant of the lease (and all of the other flats in the block go up by the same proportional value since the time they were built) - then your ground rent would go up to £223.

That doesnt sound like a big deal, but its unusual.

saajan_12

Inherently I don't think its a worrying clause: many ground rents increase in line with inflation. This simply focuses the increase relative to a market in line with your property value. So if that block increased in value then you have to pay more ground rent which seems fair. If the local property market fell but the national inflation was high, it seems fair that you aren't penalised for the rest of the country doing well.

However two main concerns:
1) Its an unusual clause -> future buyers and lenders may be wary of the 'unknown' because they don't understand it or it doesn't fit into one of the nice little boxes that the computer can say 'yes' to.
2) How will they determine the 'value of the block of flats'? According to average sale price.. asking price.. over what period.. do they decide arbitrarily..

jonnygee2

- if your flat is worth 250k in 21 years (having gone up from 140k)

That's very conservative though. In the last 21 years house prices have risen about 280% making the new rent £350. That's already significant jump and a high level of ground rent.

SmashedAvacado

If prices go up by 280% the flat will be worth £392k and i am sure she will be happy

jonnygee2

In fact, in greater London average price rises is 440% so if it's in London the new rent could easily become £500+. And if that can happen to London, it can happen in other places in the future too.

I'm sticking to my guns and saying there's no way I'd buy a house with this clause. So if nothing else take me as an example of a buyer who you'd lose out on in a future sale.

abi_93

Here are my calculations:

Avg. Property Price No. of Flats Total Value of Block
2002 £140,000 6 £840,000
2023 £220,000 6 £1,320,000
2044 £345,714 6 £2,074,286
2065 £543,265 6 £3,259,592

Ground Rent No. of Flats Total GR - Value of Block
£125 6 £750
£196.43 6 £1,178.57
£308.67 6 £1,852.04
£485.06 6 £2,910.35


% of Initial Value of Block to New Value of Block = 57.143%

Definitely,it's not the affordability of the clause as much the re-sale of the property that is worrying me, even if the bank comes back and is happy to proceed.

jonnygee2

If prices go up by 280% the flat will be worth £392k and i am sure she will be happy

But you could have bought another place without that clause and have both the price rise and sensible ground rent.

And the price that the valuer, employed by TaylorWimpey, comes to when he does the rent review does not necessarily equate to the sale price she will achieve when she comes to sell.

davidmcn

Are people here expecting the ground rent to decrease in real terms? I don't see anything unduly onerous about it being indexed so it remains (at most) roughly 0.09% of the value of the leasehold, which is all that the clause seems to do.

The "scandal" is about those where the ground rent increases in ways which are exponential or bear no relation to any actual inflation or increase in property values.