Should I buy a leasehold property with ground rent doubling?

Blue_Carbon

Hi there- I'm a first time buyer looking to purchase an apartment with 107 years left on the lease and current ground rent of £150p.a. I've been informed by my solicitor that there is a clause in the lease where the ground rent will double every 25 years with it due to double in 2030 to £300p.a.

Now I've read a lot on the forums and Google about how this can affect my chances of securing a mortgage and also selling the flat on at a later date. 

Should I be concerned? What can I do about this?

I've read that I can either wait 2 years on moving in to extend the lease and reduce the ground rent to peppercorn rent or I could possibly ask the seller to arrange a statutory lease extension now?

Any advice would be much appreciated 

bouicca21

Where is it - London or provinces? If the provinces anything over £250 is a potential problem.  Is the ground rent capped?

And yes you can extend and effectively buy out the ground rent but it will cost you.

eddddy

Blue_Carbon said:

I've read that I can either wait 2 years on moving in to extend the lease and reduce the ground rent to peppercorn rent or I could possibly ask the seller to arrange a statutory lease extension now?

Both those options are possible. Obviously, you'd need a chunk of spare cash to pay for the lease extension (I don't know if you'd be using up all your savings on the purchase).

Legal and valuation fees might be £2k or £3k on top. The leasehold reforms under discussion are supposed to cut those fees dramatically - but it's unclear when/if those will happen.

Most mortgage lenders 'advertised' terms say that GR doubling every 25 years is ok. But a few people have reported problems with some lenders - but maybe they misunderstood the lender's objection. Who knows?



You'll also face the issue of GR going over £250 (if you're outside London). That increases the risk of forfeiture (repossession by the freeholder). Some lenders might want indemnity insurance, and it might make some buyers nervous.

The £250 issue should also go away when/if the leasehold reforms happen.

Blue_Carbon

Thanks for the replies both.

@bouicca21 - The property is in Yorkshire and the ground rent isn't currently capped.

Can I get the rent capped?
Do you know how much it could cost to extend? (rough estimate) 

@eddddy - would that £2 - 3k include the cost of extending the lease or would that just be for getting the valuation done? Would that be a voluntary extension?

I've heard about the new legislation and it sounds hopeful, but I'm trying not to rely on that given politicians track record of pushing through legislation/getting things done

eddddy

Blue_Carbon said:

Can I get the rent capped?

You can ask the freeholder if they'll cap the rent. But they can...

• refuse
• ignore your question
• charge you any price they choose
• or charge you a reasonable price

(The legal costs for doing the lease variation might be £1k to £1.5k)

Blue_Carbon said:

Do you know how much it could cost to extend? (rough estimate) 

I make it somewhere between £4k and £6k - for a statutory lease extension.

Blue_Carbon said:

would that £2 - 3k include the cost of extending the lease or would that just be for getting the valuation done? Would that be a voluntary extension?

The £2k to £3k would just be legal and professional fees for a statutory lease extension - excluding the cost of the lease extension. That includes,

• your valuer's fee
• your solicitor's fee
• the freeholder's valuer's fee
• the freeholder's solicitor's fee

You'd have to pay all of those.

The fees could be lower for an informal lease extension - if you can agree a fair price with the freeholder.

(But I've seen leaseholders who've paid fees towards an informal lease extension - then negotiations break down, and they have to then start again and pay the full fees for a statutory lease extension on top.)

propertyhunter

You definitely need to remove the doubling ground rent clause through a deed of variation. It's such a risk because you're 8 years away from being an AST since the next doubling in 2030 tips you over £250 and you're in Yorkshire. I think any lender would be reluctant to lend on this basis. Have you applied for a mortgage?

A friend tried to negotiate the anticipated costs off the selling price, but the issue is - no one can really tell you what the price will be - and also the buyer said no. 

NameUnavailable

At the moment this is a problem for the vendor. Do you want to buy their problem?

Blue_Carbon

@eddddy - based on your figures, the lease variation sounds much more feasible, if I could be paying £8 - 10k for the solicitor fees and lease extension together. Unless it's possible to get this knocked off the house price?

@propertyhunter - I have applied for a mortgage and based on conversations with the mortgage lender, it seems unlikely I'll be able to get one with them purely based on this doubling ground rent

@NameUnavailable - what do you mean by this exactly?

eddddy

Blue_Carbon said:

@eddddy - based on your figures, the lease variation sounds much more feasible, if I could be paying £8 - 10k for the solicitor fees and lease extension together. Unless it's possible to get this knocked off the house price?

@propertyhunter - I have applied for a mortgage and based on conversations with the mortgage lender, it seems unlikely I'll be able to get one with them purely based on this doubling ground rent

Just to clarify - a statutory lease extension usually takes about 6 months or more. And it will be very difficult to align the statutory lease extension with buying the flat.

Realistically, you'd have to buy the flat with it's current lease, and complete the statutory lease extension later.


If your mortgage lender won't accept the current lease with the doubling ground rent clause - you're almost certainly stuffed. 


(Your only real option would be to try to negotiate an informal lease extension on completion. But that's probably a bit of a long-shot.)

propertyhunter

Agree with eddddy.

I think if your lender is unlikely to lend, I imagine this will be the case for other prospective purchasers requiring a mortgage. It's probably in the seller's interest to initiate the process for a deed of variation now and sell with a peppercorn ground rent. I'm sure even a cash buyer would hesitate to purchase this property given the risk to their investment because it would be hard to offload.