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Doubling ground rent every 25 years on a leasehold flat - should this be a dealbreaker?
I am going through the process of purchasing a leasehold flat in London. I've found some concerning details about the ground rent, even though there are 990 years left on the lease
Under the terms of my lease agreement, the ground rent is currently £350.00 per annum and rises as follows:
£350 for the first 25 years of the Term;
£700 for the next 25 years of the Term;
£1,400 for the next 25 years of the Term;
£2,800 for the next 25 years of the Term;
£5,600 for the next 25 years of the Term; and
£11,200 for the remainder of the Term.
Considering the recent legislation reducing ground rents of new build flats to peppercorn values, should I avoid the purchase of this flat completely? I'm worried about the resale value...
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If it was doubling faster than this you'd definitely be worried.
Might want to ask mortgage providers if this is okay.
As you move up the housing ladder inside/outside London this may not be a very long-term problem.
Under the current legislation, it might cost between £8k to £12k (plus fees) to extend the lease in order to get a peppercorn ground rent. Say £10k to £15k in total.
If/when the leasehold reforms happen, that might reduce the cost by £2k to £4k.
So if you aim to pay £10k to £15k less than for a similar flat with a peppercorn ground rent, that might be reasonable.
But there are a few anecdotes about mortgage lenders occasionally refusing ground rents that double every 25 years, but I don't know if they're reliable anecdotes (or misunderstandings about the reasons for refusal).
There's the issue of ground rent potentially exceeding £1000 - but that shouldn't be a problem if it doesn't occur within the lifespan of the mortgage. And even if it does occur with the mortgage lifespan, lenders all seem to accept indemnity insurance for that.
You want to select England and Wales and I would suggest then selecting Nationwide Building Society as the lender.
Then select Part 2 only.
5.14.9 is the relevant section and if you click on 'view all answers to this question' you can find out what all the UK Finance lenders' requirements are. They vary considerably and cause solicitors real headaches. If only all lenders would agree to the same requirements!
I think you mean this page: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1852/
All the lenders say 25 yearly doubling is acceptable, but as I say, there are some anecdotal examples of people claiming otherwise. But I'm not sure how reliable the anecdotes are.
But also looking back I thought the flat was too expensive and after all I wasn’t sure if I liked it that much.