Doubling Ground Rent every 25 years

araki

Dear all,

I have just joined this forum since I read many threads about this well known issue.
We are in the process of acquiring a 2 bed flat in London with a lease of 125 years. The ground rent is 475 a year (I know, quite high, but I am not surprised), doubling every 25 years. I read about the issues with the ground rent increase regarding the difficulty to sell/ decreasing of value. I also know that many issues rise from the increase every 10 years and that, from what I read, banks are not happy if the ground rent is more than the 0.1% of the value of the property. Not great with numbers myself, but 475 is less than 0.1% of the price we are paying for the property (595000) £ I know that the value could decrease a bit. Now, I know that probably the only way to get rid of this would be to extend the lease, but I find difficult to imagine the real cost, since from what I gathered the ground rent increase would make the payable premium way more expensive.
Any advice in this matter? Would you buy a flat with 25 years doubling clause? For me it is a bit difficult letting it go because it’s a big flat compared with the general size of new builds flat (especially in zone 2 in London) and I have looked for this particular kind of flat in this exact location for a long time. I am really concerned. I am a first time buyer, definitely not super expert! Would you try to negotiate something about the lease with the solicitors? I am not sure what action I could take.

Thank you very much for every possible advice, I am really worried!

Okrib

There are far more qualified people that me regarding the power of inflation however you can easily work out what the ground rent payable will be throughout the lease.

In 25 years it will increase to £950 per year
In 50 years it will increase to £1900 per year
In 75 years it will increase to £3800 per year
In 100 years it will increase to £7600 per year

I would suggest speaking to a specialist in leasehold extensions to get them to calculate the likely cost of extending your lease (which you would not be able to do until you have owned it for 2 years anyway). This might cost you some money but will give you a much clearer idea of where you stand - and remember once you extend your lease you will only pay a peppercorn per year.

AdrianC

Doubling every ten years is a LOT worse than doubling every 25.

To put it in perspective, and assuming this year is year 1 - to get the same annual figure in year 25, you'd be looking at an annual increase of just under 3%. CPI is currently 2.4%, RPI 3.3%.

BUT... By year 25, you'll have paid a total of 40% more with an annual increase than with that 25-yr-doubling.

(Doubling every 10yrs is equivalent to about 8% annually - and, compared to doubling every 25, gives you a total of 2.7x as much paid by year 25...)

bouicca21

For some reason my iPad won't let me paste a link, but there have been 2 previous threads about the dangers of ground rents rising to more than £250 outside London or more than £1000 in London, and the consequent refusal of mortgage lenders to consider them.

fussyhumanbeing

I had this problem before - some banks will not lend with a doubling ground rent clause (like my bank halifax) - you may want to check this out with your lender if you have a mortgage.

Developers have shot themselves in the foot with this stupid clause to be honest. If they replace it with an RPI clause banks are usually okay with it and it ends up increasing to the same extent anyway. If you want to have a chat about this PM me, I can help you out. Did a lot of research on this.

TrickyDicky101

When does the first doubling event take place? I presume it is not a new build so it may well be significantly before 25 years from now.

araki

Okrib wrote: »

There are far more qualified people that me regarding the power of inflation however you can easily work out what the ground rent payable will be throughout the lease.

In 25 years it will increase to £950 per year
In 50 years it will increase to £1900 per year
In 75 years it will increase to £3800 per year
In 100 years it will increase to £7600 per year

I would suggest speaking to a specialist in leasehold extensions to get them to calculate the likely cost of extending your lease (which you would not be able to do until you have owned it for 2 years anyway). This might cost you some money but will give you a much clearer idea of where you stand - and remember once you extend your lease you will only pay a peppercorn per year.

Thank you so much for your time,

I just called a leaseholder extension expert and he should put me in touch with a valuer, but he clearly said that since the ground rent is so expensive, it will be a significantly expensive procedure. I'll wait to knoe a bit more but I am seriously considering walking away from the deal.

araki

TrickyDicky101 wrote: »

When does the first doubling event take place? I presume it is not a new build so it may well be significantly before 25 years from now.

It is a new build, the first raise will be in 25 years, but still, I am not sure about the saleability of the property in the future.

araki

TrickyDicky101 wrote: »

When does the first doubling event take place? I presume it is not a new build so it may well be significantly before 25 years from now.

fussyhumanbeing wrote: »

I had this problem before - some banks will not lend with a doubling ground rent clause (like my bank halifax) - you may want to check this out with your lender if you have a mortgage.

Developers have shot themselves in the foot with this stupid clause to be honest. If they replace it with an RPI clause banks are usually okay with it and it ends up increasing to the same extent anyway. If you want to have a chat about this PM me, I can help you out. Did a lot of research on this.

Hi there,

thank you so much for your reply.
I am concerned, because I received the mortgage offer from the lender today, but they are surely not aware of the doubling ground rent clause. They know it is "on a rising scale", that is what is written on the valuation, but surely they are not aware of the terms of the rising.
I just called a leasholder extension expert that has suggested the same thing as you. He thinks that lenders wil not be happy with this clause. I am confused, why on earth they should give an offer based on a valuation without being aware of all the terms of the contract?

I spoke to the broker about this and she said: "ah don't worry, the solicitors will think about this." Sure, but then I'll have to pay a lot more if pulling out (costs of my solicitors and bank's solicitors). Now I have put some pressure on her, hopefully she will communicate the doubling ground rent soon. Even if the mortgage is confirmed, considering that the procedure of extending the leasehold will probably be very costly, and that other buyers in the future would have this same problem, I am really not sure if I should proceed. On the other hand, I will not be in the position of buying somethign else for a long time. We are also using help to buy.
Thank you, it would be good to be in touch!

bouicca21

see post 10


https://forums.moneysavingexpert.com/discussion/5798898ast

AdrianC

fussyhumanbeing wrote: »

Developers have shot themselves in the foot with this stupid clause to be honest. If they replace it with an RPI clause banks are usually okay with it and it ends up increasing to the same extent anyway.

Replace "double every 25yrs" with RPI, and at the current RPI you'll pay 9% more in year 25, and just over 40% more over the 25yrs.


Sure, over the last 25yrs, you'd have fared better. You'd be paying less each year now - just 79% of the doubled amount - but you'd have paid about 2% more total. Want to gamble on the future? Be my guest.