ground rent £300, 5 year review (RPI).

Surfshopper22

Hello all,

I am currently in the process of buying a house where the ground rent is a little over £300.
The ground rent is set to be reviewed every 5 years and goes up in line with RPI. Will this become difficult to sell in the future?
The lease has 119 years left on it.

How long will it be before it is reaching £1000's a year as I am unsure how this is worked out. 
My lender will not lend on a 5 year review plan so I am currently trying to have a deed of variation to change the review period from 5 to 10 years, however, they have said no to this, so if I can't get them to change it with some persuasion then I will be forced to change my lender or pull out completely. 

Thank you. 

On-the-coast

Leaving aside the conditions your lender mandates,.. if the actual ground rent is tied to RPI then it doesn’t really matter when it hits £1000 because everything else (wages, house-prices etc) will have increased too. 

However if the increase is RPI plus a percentage that’s a different story

Surfshopper22

On-the-coast said:

Leaving aside the conditions your lender mandates,.. if the actual ground rent is tied to RPI then it doesn’t really matter when it hits £1000 because everything else (wages, house-prices etc) will have increased too. 

However if the increase is RPI plus a percentage that’s a different story

Thanks for your reply. I have no idea about any percentage. I have just been told that it goes up every 5 years currently in line with RPI and I have heard this will make it harder to sell on in the future as people are put off by leasehold properties, especially with high ground rent. 

JReacher1

I wouldn’t worry about it too much. I’ve just bought a house on the same terms. Everyone on my estate has the same terms and houses sell very quickly here. 

Surfshopper22

JReacher1 said:

I wouldn’t worry about it too much. I’ve just bought a house on the same terms. Everyone on my estate has the same terms and houses sell very quickly here. 

Thank you for your reply. Who did you get your mortgage with for this? As like I say, my lender ( nationwide ) has said they will not lend unless the review is changed to 10 years instead of 5… 

I have heard Halifax may lend on the 5 with these terms 

penners324

Assuming it's in London then anything above £1000 (even in the future) forms an AST an no lender will lend on those terms.

Your seller's freeholder needs to agree the deed of variation to cap the ground rent as well. Otherwise their property becomes unsellable.

Surfshopper22

penners324 said:

Assuming it's in London then anything above £1000 (even in the future) forms an AST an no lender will lend on those terms.

Your seller's freeholder needs to agree the deed of variation to cap the ground rent as well. Otherwise their property becomes unsellable.

Hi, this property is not in London but ground rent is over £300…. 

it seems a lot of people are saying anything over £250 is a big issue  

we have come so far into the purchase that we are literally just waiting for lease terms to be agreed now, but I am concerned how many people are saying to avoid anything over that £250 mark. 

tryingmybest99

Hi Surfshopper22. I just bought a flat with ground rent of £150 rising with RPI, reviewing every 15 years. I'm outside of London and the rent is likely to be above £250 during the lifetime of the mortgage. I decided to proceed with the sale (although I was very tempted to walk away). In order for the sale to go through, indemnity insurance had to be bought for my mortgage company (I think this cost was covered by the seller). This is not a permanent fix as if/ when the rent goes above £250, if I neglect to pay it for any reason, the freeholder could technically go to court and get a mandatory order to end the lease and I would lose the flat and the equity I've put in. The indemnity insurance only protects my mortgage company. The obvious way to mitigate this risk is to pay the rent, but being an anxious person I kept on imaging scenarios where I got hit by a car and put in a coma and my family forgot to pay the rent, lol!

Permanent solutions are requesting a deed of variation from the freeholder (which they can turn down) or a statutory lease extension (this can be expensive and the amount needs to be calculated by a lawyer if you have rising ground rent as you will have to compensate the freeholder for the future ground rent on the lease). You can do this when you are in for 2 years or ask the current seller to start the process for you (or even see if if you could ask the seller to to sort the problem out permanently their end and before buy by doing extension themselves but that will take at least 6-months possibly over a year).

The government has said they will try and close the loophole but they seem to be doing it by  reducing ground rents below the threshold (but only on new leases). There is no current planned legislation to close the loophole in the 1988 law that is causing this AST issue. On the other hand of all the research I have done, that does not seem to be an actual real-life case of somebody testing this law and a freeholder taking back the property through this route. Yet, lol.

So I guess what I'm saying is you can go for it if you really want this property, there are ways out (but you need to understand the costs) and you need to consider the risks (especially as when new leases start coming out with no ground rent, these properties with leases with high ground rent will seem a lot less desirable). I considered the risks and costs and went for it anyway. Am I wrong? I don't know yet, lol. Good luck though!