How will my lease affect the value of my property

blinko

Hi everyone ,

wanted to ask your opinion, I bought a flat (7 years ago ) in London and everything is going fine with it, here the details are. When it comes to resale / extension i could be stuffed ?

Lease details

125 year extension August 2015 for 125 years so 118 years left.  

Property is Victorian conversion, 2 flats in total, other flat lease length approx 68 years pays £30 p.a ground rent

mine is 1 bed flat, market value at present about £240k

ground rent schedule 

£200 p/a ground rent up to 2035

£400 from 2035 to 2055

£800 from 2055 to 2075

£1,600 from  2075 to 2095

£1,800 2095 to 2115

£2,000 from  2115 to 2135

£2,200 from 2135 to 2140

questions

1. How will this schedule affect the value of my flat, I'm aware that once ground rent gets over £250 pa it become and issue for lenders

2. will the increasing ground rent increase the cost of a lease extension (I could extend and get £0 ground rent)

3. Is there any way around this, for example to buy the freehold (2 flats in total, other flat has 68 years on lease approx + pays £30 p/a ground rent)

thanks everyone

jrawle

How long are you likely to want to stay in the flat? It looks fine to me. You have a long lease, and the ground rent increases are in line with typical inflation (and of course below the current high levels of inflation). If you are likely to sell in the next decade, it's certainly completely irrelevant.

Incidentally, £240k for a flat in London seems on the low side. I guess it's not anywhere very central?

blinko

Its zone 4 , i purchased it in 2016 so quite a while back

eddddy

So you have a ground rent that doubles every 20 years for the initial years of the lease.

Many mortgage lenders state that they won't accept ground rents that double every 5, 10 or 15 years...

...but a few people have been posting here saying that their mortgage lenders are querying ground rents that double every 25 years.  So doubling every 20 years might be a bit of an issue.

blinko said:

1. How will this schedule affect the value of my flat, I'm aware that once ground rent gets over £250 pa it become and issue for lenders

The £250 ground rent limit is a problem outside London. Assuming you're in a London Borough, the limit is £1000. Mortgages are generally only for 30 years - so the ground rent won't go above £1000 in that time.

blinko said:

2. will the increasing ground rent increase the cost of a lease extension (I could extend and get £0 ground rent)

  Yes - it will increase the cost of a statutory lease extension (which would reduce your ground rent to £0)

blinko said:

3. Is there any way around this, for example to buy the freehold (2 flats in total, other flat has 68 years on lease approx + pays £30 p/a ground rent)

Yes - you and your neighbour can (usually) club together to by the freehold. It's called Statutory Collective Enfranchisement.

Then you and your neighbour are free to agree to extend the leases to 999 years and reduce the ground rent to £0.

eddddy

eddddy said:

Yes - you and your neighbour can (usually) club together to by the freehold. It's called Statutory Collective Enfranchisement.

Then you and your neighbour are free to agree to extend the leases to 999 years and reduce the ground rent to £0.

.... but if you and your neighbour jointly buy the freehold and you want to split the cost fairly, you should probably contribute around £15k less than your neighbour - because your lease has already been extended, and your neighbour has a very short lease.

However, you might have trouble convincing your neighbour that it's 'fair' for them to pay £15k more than you.


(If you do decide to buy the freehold, you'll probably employ a valuer to do the valuation calculation. So maybe the valuer would be able to convince your neighbour.)

blinko

Thanks so much for your help guys 

Another question which I realized may affect the extension. In the lessee I have to pay 0.1% of the mortgage value. if I register a new charge eg change bank or sell the property. would this also affect the extension (why would someone put this jn a lease ? It appears to me just a way to extract money 💰) .

The leaseholder below wants to extend his lease but he can't afford to unfortunately. It's a cash flow issue as I'm sure he has enough equity in the flat.

Theoretically would the freehold purchase be the same as lease extension cost for both flats . We both have £0 service charge on the property (we pay for our own buildings insurance and repairs ourselves) 

Or alternatively I could buy the freehold but then I'm loathed to spend like 20k on something like this, waiting to recoup my money (if the flat below extended) 

Thankfully the freeholder appear nice people 

eddddy

blinko said:

Another question which I realized may affect the extension. In the lessee I have to pay 0.1% of the mortgage value. if I register a new charge eg change bank or sell the property. would this also affect the extension (why would someone put this jn a lease ? It appears to me just a way to extract money 💰) .

If you get an 'Informal Lease Extension', you'll need a 'deed of substituted security' - that might (or might not) trigger the payment. But as it's an 'Informal Lease Extension', you'd be negotiating the terms anyway - so you can take account of that.

If it's a Statutory Lease Extension, you don't need a 'deed of substituted security' - but check with your solicitor.

blinko said:

The leaseholder below wants to extend his lease but he can't afford to unfortunately. It's a cash flow issue as I'm sure he has enough equity in the flat.

So they won't have any money to jointly buy the freehold.

blinko said:

Theoretically would the freehold purchase be the same as lease extension cost for both flats . We both have £0 service charge on the property (we pay for our own buildings insurance and repairs ourselves) 

Or alternatively I could buy the freehold but then I'm loathed to spend like 20k on something like this, waiting to recoup my money (if the flat below extended) 

Buying the freehold would probably cost a bit more than extending both leases.

To buy the freehold yourself, you'd need the cooperation of your neighbour for the statutory route - or you'd need to informally negotiate with the freeholders.

blinko said:

Thankfully the freeholder appear nice people 

Hmmm.... they 'kind of' shafted the leaseholder back in 2015 when they increased the ground rent from £30 pa to £200pa and doubling - when the lease was extended.

That's equivalent to taking £5k of value from the leaseholder, to keep for themselves. (Which now makes your freehold purchase £5k more expensive.)

Hopefully, they reduced the price of the lease extension in 2015 by £5k to compensate. 

blinko

If you get an 'Informal Lease Extension', you'll need a 'deed of substituted security' - that might (or might not) trigger the payment. But as it's an 'Informal Lease Extension', you'd be negotiating the terms anyway - so you can take account of that.
If it's a Statutory Lease Extension, you don't need a 'deed of substituted security' - but check with your solicitor.

Sorry what do you mean by trigger the payment ? are you talking about the clause relating to the  pay 0.1% of the mortgage value. if so thankfully this is about £150 so not enough to lose sleep over

Would you say that statutory extensions are more expensive than informal, it seems to me that informal is a better way or pushing costs down the line. rather than trying to save money or do it properly.

thanks will research deed of substituted security.

Buying the freehold would probably cost a bit more than extending both leases.

To buy the freehold yourself, you'd need the cooperation of your neighbour for the statutory route - or you'd need to informally negotiate with the freeholders.

ahh okay that chimes in with what I was suspecting , lease 1 plus lease 2 extension plus little bit on top = freehold, the problem is downstairs is like 68 years or something, so an expensive extension

Hmmm.... they 'kind of' shafted the leaseholder back in 2015 when they increased the ground rent from £30 pa to £200pa and doubling - when the lease was extended.
That's equivalent to taking £5k of value from the leaseholder, to keep for themselves. (Which now makes your freehold purchase £5k more expensive.)
Hopefully, they reduced the price of the lease extension in 2015 by £5k to compensate.

Oh definitely shafting going on, its so bad that this kind of thing is allowed, I couldn't do it myself but the more I dig the more I find there are plenty out there who quite happy to knowingly shaft others and unfortunately the system allows them to get away with it, The previous owner let it run down to 70 years or something and they did an informal extension, previous ground rent was £30 as well, then changed to this sliding scale plus the 0.1% mortgage fee

So I suspect the aim was to get it mortgageable