RPI Ground rent review every 7 years - which Mortgage lenders lend?

anselld

littlerock wrote: »

One of the issues with RPI increases, is that there are upward only increases, the ground rent does not fall if inflation goes down.

Not really an issue as it is extremely unlikely for RPI to be negative over a whole review cycle.

davidmcn

littlerock wrote: »

One of the issues with RPI increases, is that there are upward only increases, the ground rent does not fall if inflation goes down.

True, though you'd need to go back to the 1930s to find a period of 7 years over which there was aggregate deflation, so I doubt this is a significant risk.

AdrianC

...and to agree with Anselld and Davidmcn by illustration...



Since the end of that graph, it's been back above 0% constantly.

littlerock

From "Lawyer Monthly"

https://www.lawyer-monthly.com/2018/03/rip-for-rpi-ground-rent-clauses/


Ground rents which automatically double every 10 years may now have fallen out of favour but there remains another weapon in the developer’s armoury which has not: ground rents which increase by the percentage increase in the retail price index (RPI) over the preceding 10-year period. These clauses are invariably worded so that any decrease in RPI, no matter how unlikely, means that the rent will stay the same, and so the review is “upwards only”. The problem for prospective purchasers of leases is that most banks and commercial lenders insist on further investigation where a lease clause links increases in ground rent to RPI, and some of the smaller banks will refuse to lend against such a lease at all. Take Accord Mortgages, for example, part of the Yorkshire Building Society, which states that ground rent “must not be capable of being increased during the first 21 years of the lease” – a major problem when a lease provides for an RPI-linked rent review every 10 years.

The index hit a bottom of -1.6 per cent in June 2009 but has risen since then to 4 per cent today; and, with the end of central bankers’ unprecedented experiment in quantitative easing on the horizon, inflation is expected to rise even further – fears which strongly influenced the sudden downturn in global equity markets in early February this year. On 31st January, Mark Carney, the Bank of England governor, told the House of Lords economic affairs committee that he wants “a deliberate and carefully timed” withdrawal of RPI from its use in government contracts because “most would acknowledge [that it] has no merit” and contains “known errors.”

littlerock

Barclays current policy on Ground rents when lending for mortgages:

https://www.ftadviser.com/mortgages/2018/09/12/barclays-sheds-light-on-ground-rent-policy/