Ground rent doubling after 25 years?

Winterrose

Hi, in need of a bit of advice,

I am in the process of buying a leasehold flat and my solicitor has flagged that the ground rent doubles every 25 years (from 2015, when the lease was extended by the seller). He said in his report that he believes this is unreasonable and I should think carefully.

It's all new to me and I don't know much about leaseholds so have no idea how common this is? I really love the flat and don't want to pull out only to find that most other flats I see have clauses like this too. But obviously I also don't want to buy something it will be very difficult to sell in a few year's time (intending to stay up to 5 years). I am in an expensive area so a leasehold flat is my only option currently.

I have read mixed reports online. A lot of people have said they wouldn't worry about doubling every 25 years as it would just be in line with inflation, the worrying clauses double the ground rent after 10/15 years. However, others have said that some lenders don't lend on properties with doubling ground rent clauses, although these articles always seem to relate to new builds, which this flat isn't.

I am going to give my mortgage adviser and solicitor a call later to see what they both think, but does anybody have experience of dealing with a property with a term like this? I am unsure how/whether to proceed.

SmashedAvacado

how long is the lease ?

and how much is the ground rent at the moment?

Winterrose

The lease is 122 years and ground rent is £375pa.

armchaireconomist

Doubling every 25 year equates to 4% per annum, which isn't ridiculous. What is the existing ground rent?

davidmcn

armchaireconomist wrote: »

Doubling every 25 year equates to 4% per annum

Less than that (remember the effect of compounding) - it's the equivalent of an annual rise of about 2.8%.

Winterrose

Thanks for the replies, I am not so worried about the amount myself but more that I've read it can be an issue when selling as buyers will be wary (due to same reasons as me) and lenders are also wary of lending on properties with these clauses in the lease.

eddddy

Winterrose wrote: »

my solicitor has flagged that the ground rent doubles every 25 years (from 2015, when the lease was extended by the seller).

Winterrose wrote: »

The lease is 122 years and ground rent is £375pa.

It sounds like a naive leaseholder got a cheap, dodgy 'informal' lease extension - a short term, with a high escalating ground rent.

You can still get the ground rent down to zero by doing a statutory lease extension - but that would probably cost many thousands.


There's a lot of 'negative sentiment' about high, escalating ground rents at the moment. If that sentiment continues and grows, you might find it difficult to sell in the future.

But equally, sentiment may change, and people become less concerned.

Winterrose

eddddy wrote: »

It sounds like a naive leaseholder got a cheap, dodgy 'informal' lease extension - a short term, with a high escalating ground rent.

You can still get the ground rent down to zero by doing a statutory lease extension - but that would probably cost many thousands.

I agree, it's annoying that the leaseholder did that when they could have eradicated the ground rent down the statutory route!

I spoke to my mortgage advisor, he did some research and checked with Barclays who said that doubling every 25 years would be fine. My mortgage is under review with Virgin Money due to this but the RCIS surveyor who did their valuation has confirmed they don't believe it will adversely affect the value or salability of the flat, so it should be fine there too, which has made me feel a bit better.

eddddy wrote: »

There's a lot of 'negative sentiment' about high, escalating ground rents at the moment. If that sentiment continues and grows, you might find it difficult to sell in the future.

But equally, sentiment may change, and people become less concerned.

Mortgage advisor mentioned this too, said it's definitely a hot button issue at the moment and the government are in consultation about it now, but he seemed to think because it's becoming so prevalent a lot of lenders are changing their terms to accept it, but also that it's likely some legislation will come in to change/ban it as well.

nicmyles

I was in an identical position to you - got mortgages with two different lenders on the flat with no issues whatsoever and sold it after four years with no issues whatsoever. No-one at any point mentioned the ground rent as a problem and as I had only planned to own the flat for a short time, it wasn't a problem for me either.

[Deleted User]

There is a big groundswell of movement and bad feeling about these escalating ground rents and some lenders are refusing to lend against these properties. Full marks to your solicitor for highlighting this.


Get yourself over to the FB page National Leasehold Campaign , there is a lot of good reading. Personally I wouldn't touch a Leasehold in the current climate and particularly one with that ground rent clause . The very fact that it is such a hot potato in the news / media will mean a lot of people are aware of the pitfalls and the property will be harder to sell.


Its not just the ground rent to be wary of you have to really research the Freeholder and service charges. Big investors buy Freeholds and they do that to make profit so will be looking to s@rew as much as possible from the Leaseholders.


Personally I'd rather carry on renting until this whole area is assessed , the Law Society is doing a lot of work at the moment in conjunction with the Government to make things fairer for Leaseholders, but it has been said it will be hard to do retrospective amendments so don't saddle yourself with a problem property until a new legislation comes into force.

Tom99

[FONT=Verdana, sans-serif]You can always buy out the doubling ground rent which might cost about £10k plus fees so say £13/14K, either in 2 yrs or straight away by asking the seller to serve a section 42 notice and assign it to you.[/FONT]