Escalating ground rent - would you buy?

Mimi123456

tryingmybest99 said:

I have just bought a flat with a ground rent rising with RPI. I am not sure it was a great idea but I have plans to complete a statutory extension in two years when I have the right to and it is likely to cost me about £10,000.

I think adjustments to rpi are generally not viewed as negatively as doubling provisions.
£10k is within reasonable expense if you really liked the flat. 

But I hope that in a couple of years they properly clamp down on these criminal advantage-taking of leaseholders and you don’t have to pay anything. 🤞🏻

tryingmybest99

Mimi123456 said:

tryingmybest99 said:

I have just bought a flat with a ground rent rising with RPI. I am not sure it was a great idea but I have plans to complete a statutory extension in two years when I have the right to and it is likely to cost me about £10,000.

I think adjustments to rpi are generally not viewed as negatively as doubling provisions.
£10k is within reasonable expense if you really liked the flat. 

But I hope that in a couple of years they properly clamp down on these criminal advantage-taking of leaseholders and you don’t have to pay anything. 🤞🏻

Thanks, I am hoping that future legislation will go in leaseholders' favour, but it is hard to say! Ground rent was originally meant to be peppercorn and not an opportunity for greedy people to make more profits!

Chris_English

Mimi123456 said:

tryingmybest99 said:

I have just bought a flat with a ground rent rising with RPI. I am not sure it was a great idea but I have plans to complete a statutory extension in two years when I have the right to and it is likely to cost me about £10,000.

I think adjustments to rpi are generally not viewed as negatively as doubling provisions.
£10k is within reasonable expense if you really liked the flat. 

But I hope that in a couple of years they properly clamp down on these criminal advantage-taking of leaseholders and you don’t have to pay anything. 🤞🏻

But this lease is going up more slowly than RPI, on current expectations. How can RPI indexing be UK, but less than RPI be “criminal”?

tracytown

990 years on the lease is huge for a flat. No way you need to increase that unless its down to 90, then the flats lose value. I would say does the ground rent cost offset against the maintenance fees each month? I know some are only cheap in relation. Example the ground rent is £45pcm, but the maintenance is only £35 was one I came across. 

If ground rent is abolished the gov/land owners etc will simple add another fee or something elsewhere. Nothing ever goes down in price for anyone.

Mimi123456

Thank you Chris and tracytown.

So you think the deal sounds okay and not crazy? And I would be able to find buyers down the line?

Yesterday I was leaning towards pulling out. But now I’m back to undecided. I like the flat and location. And pulling out would probably mean back to rental for another year

With regards to ground rent offsetting other expenses I’m not sure. The service charge is around £3-4k pa. The flat is less than 10yrs old so that mainly goes towards cleaning, concierge etc

would a reasonable person be interested in it? Or is £250-450 ground rent and £3k service charge just crazy? 

I’m lost. First time buyer panic 🙈

I got my mortgage offer yesterday so have 7days to decide if I proceed 

Mimi123456

The annoying thing is that no one would give me a good estimate of what it would cost to extend and remove this doubling clause. 

Online calculators give me £40-50k but maybe it’s not that much in reality.

obviously the conveyancing solicitor is trying to steer clear from giving any advice  

eddddy

Mimi123456 said:

Online calculators give me £40-50k but maybe it’s not that much in reality.

Which online calculator have you found that handles escalating ground rents?

Also, the online calculators tend to be more accurate for properties with low ground rents.


The calculators try to answer the question "How much could the freeholder sell the ground rent for on the open market?" So, for example....

• If there was a block of 10 flats each with a low ground rent of £50 (so £500 pa in total) - that's not a very desirable investment, so it would be sold off very cheaply at auction. (So the discount rate for the ground rent might be 7% per year. i.e. the buyer would expect a 7% return on investment.)

• If there was a block of, say, 50 flats each with high ground rents rising to £1000 and £2000+  (so future income of £50k to £100k+) - that's a desirable investment that pension funds etc would want to buy. (So the discount rate for the ground rent might be 4% per year. i.e. a pension fund might be happy with a 4% return on investment.)

The difference between a 7% and 4% per year discount compounded over 900 years is huge.

If you want to get a real idea for what a statutory lease extension would cost, you probably need to ask a valuer. They would probably look through previous decisions made by tribunals to see which ones match your situation. But they'd probably charge you a few hundred pounds.



Having said all this - the real issue is resalability.  If all the flats in the area have similar high ground rents, then buyers have no choice. If they want to buy a flat in that area, they have to pay the high ground rent.  It's much more of a problem if your flat has a high ground rent, but there are lots of others with low ground rents.

Mimi123456

Hello everyone. Thank you all again for your thoughts. 

I pulled out of the transaction. A part of me is regretting it already though. Maybe it’s just FTB hysteresis. But I can’t have an idea of how much it would cost me to extend the lease by 90yrs and reduce ground rent to peppercorn. The solicitor said he hasn’t seen any buyers yet being stopped by this. But I’m still worried. The vendor unlike would agree to a £30-50k discount on this property. And looks like this is how much it would cost to extend.
so goodbye flat

JReacher1

I think you probably made a mistake pulling out. Don’t think this ground rent was a problem at all. 

Doubling clauses are only an issue if they double frequently. Doubling every 25 years with a cap at £4k In a 100 years wouldn’t have been a problem. 

Mimi123456

Thank you JReacher1. Yes I am probably overthinking. I already told my solicitor to stop the process and he notified the other party. I guess I can still come back. Will look very silly but it’s ok. I have the weekend to mull it over I guess

im just afraid that down the line this flat coming with caveats like ground rent doubling every 25yrs and service charge of £3k (although there is a good sinking fund, it’s a 9yo building and no major works planned) will not appeal relative to new builds with peppercorn ground rent