Escalating ground rent - would you buy?

eddddy

Mimi123456 said:

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 

It's not quite that clear cut. Based on your calculations, those equivalent newbuilds might cost £30k to £50k more than your flat.

It would work like this...

If the developer is able to charge high ground rents (like the rent you describe), the economics might be:

• The developer sells a flat for £400k to a leaseholder
• The developer sells the freehold to an investor - equiv to £40k per flat

If the developer isn't able to charge high ground rents, the economics might be

• The developer sells a flat for £440k to a leaseholder
• The freehold is worth £0

So buyers have the choice of a £400k flat with a high ground rent, or a £440k flat with no ground rent. People with limited mortgage/savings might prefer the high ground rent option.


(That's over-simplifying things - there are other factors. But it's worth bearing in mind.)

Mimi123456

Thank you eddddy. Yes fair point. That’s what i was also thinking that at least price wise the flat is much cheaper than new builds while having all the modern features. 

I’m torn… I think my solicitor has served the abortive sake notice to the other party. Not sure if I can go back after this and try to knock off a bit more off the price to make myself more comfortable 

csgohan4

There will always be another house you will like. I avoided flats for this reason as well when i was looking. 

Service charge are also eye watering and you never stop paying

koalakoala

I would never have considered that given the service charge !

Mimi123456

Thank you csgohan4 and koalakoala for your views and support 👍🏻 You saying that makes me feel better. Like a made a hard but reasonable decision with my head. I know the service charge is too high (there is a concierge and a gym, and cleaning but still). And ground rent provisions horrified the surveyor that did the building survey. He recommended me to stay away. 

But my heart is crying. I was walking around the hood today and had pangs of wanting to crawl back to the vendor, apologise and get transaction back on track. Luckily for my pride neither the EA nor solicitor work on weekends 🤪 Hope I can get my emotions under control by Monday. I love the flat, but I guess not meant to be… 😞

It’s just any other option I see is much worse or more expensive. 

Ybe

Is an escalating ground rent which increases by £140 every 25 years generally the same as increase with RPI? I looked at one where it increased to £280 5 years ago. So in 20 years time it will increase to £420.