Doubling ground rent every 25 years on a leasehold flat - should this be a dealbreaker?

eddddy

Mimi123456 said:

I tried to run calculations to see how much it would cost me to extend and change it to peppercorn and was getting crazy numbers like 90k. Because the lease is so long the present value of the compensation if cash flows to freeholder is still huge. But then, I’m not sure if I was calculating correctly. 

I suspect you weren't calculating correctly.

Using the formula and yield that the Tribunal usually use, the present day value of the OP's ground rent is between £6.5k and £8.5k

That's why I suggested that a statutory lease extension premium might be between £8k and £12k. (TBH, £12k is on the high side)

coypondboy

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

Brie

You don't state your age but I'm assuming you are oh maybe 30+ in which you're talking about selling at maybe 50-60?  Or you're much older in which case you're also assuming that you're the one that will be selling.  Too far into the future to worry about in my opinion.  There's so many other things that might happen in the next 20 ish years - no mortgages for house without air con or EV charges or heat pumps or or or

eddddy

coypondboy said:

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

That would wipeout the value of a lot of freehold property. That might hit some pension funds hard - I suspect quite a few pension funds invest in UK residential property freeholds.

I'd guess that a lot of labour voters wouldn't be happy about having their pensions slashed, in order to make leaseholders better off.

letom

Exactly, I'm a leaseholder but even I think this is a bad idea. You also start to create an incentive for freeholders to make money in other areas e.g. rebates from insurance. The best way forward is to streamline process to extend the lease to get it to a peppercorn rent e.g. fixed legal cost, potentially more favourable present value calculation for leaseholders, so freeholders are more or less compensated as they should be if and when a leaseholder wants to get rid of their ground rent.

eddddy said:

coypondboy said:

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

That would wipeout the value of a lot of freehold property. That might hit some pension funds hard - I suspect quite a few pension funds invest in UK residential property freeholds.

I'd guess that a lot of labour voters wouldn't be happy about having their pensions slashed, in order to make leaseholders better off.

user1977

eddddy said:

coypondboy said:

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

That would wipeout the value of a lot of freehold property. That might hit some pension funds hard - I suspect quite a few pension funds invest in UK residential property freeholds.

I'd guess that a lot of labour voters wouldn't be happy about having their pensions slashed, in order to make leaseholders better off.

Eh? The freeholders' property interests wouldn't just vanish in a puff of smoke, it would be done by allowing leaseholders to redeem the ground rent (and/or possibly making it mandatory for that to happen when a property is sold). The freeholders could then take their cash and invest it elsewhere, if they still wanted something with a long term investment yield.

eddddy

user1977 said:

eddddy said:

coypondboy said:

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

That would wipeout the value of a lot of freehold property. That might hit some pension funds hard - I suspect quite a few pension funds invest in UK residential property freeholds.

I'd guess that a lot of labour voters wouldn't be happy about having their pensions slashed, in order to make leaseholders better off.

Eh? The freeholders' property interests wouldn't just vanish in a puff of smoke, it would be done by allowing leaseholders to redeem the ground rent (and/or possibly making it mandatory for that to happen when a property is sold). The freeholders could then take their cash and invest it elsewhere, if they still wanted something with a long term investment yield.

I don't thank that's what @coypondboy was suggesting when they said "they want to ban ground rent for existing leasehold properties".

The leasehold reforms already under discussion include giving leaseholders the right to redeem their ground rent - in return for a payment. (That's not a new labour party policy.)

But for a lot of leaseholders, that alone won't make a huge difference. They can already do a statutory lease extension to redeem the ground rent.

In the OP's case, if they did a lease extension, ground rent compensation would be about £7.5k, and the cost of the underlying lease extension might be £1k or less. So that specific reform would only save the OP £1k.

user1977 said:

(and/or possibly making it mandatory for that to happen when a property is sold). 

What's the benefit to anyone of making it mandatory?

Why not just stick with the existing 'plan' to let the leaseholder (seller or buyer) redeem the ground rent whenever they want?

So for example, when the OP buys their property, they could choose...

• Option 1) to pay an extra £7.5k up front in return for £0 ground rent, or 

• Option 2) not to pay an extra £7.5k, and pay ground rent instead

Some buyers who are stretching their budget might even prefer Option 2.

user1977

eddddy said:

user1977 said:

eddddy said:

coypondboy said:

Labour will win the next election and they want to ban ground rent for existing leasehold properties as the tories have done for new build.

That would wipeout the value of a lot of freehold property. That might hit some pension funds hard - I suspect quite a few pension funds invest in UK residential property freeholds.

I'd guess that a lot of labour voters wouldn't be happy about having their pensions slashed, in order to make leaseholders better off.

Eh? The freeholders' property interests wouldn't just vanish in a puff of smoke, it would be done by allowing leaseholders to redeem the ground rent (and/or possibly making it mandatory for that to happen when a property is sold). The freeholders could then take their cash and invest it elsewhere, if they still wanted something with a long term investment yield.

I don't thank that's what @coypondboy was suggesting when they said "they want to ban ground rent for existing leasehold properties".

Maybe. Anyway, they obviously can't just remove people's property rights without compensation, however it's done. Human rights and all that.

What's the benefit to anyone of making it mandatory?

Because it will mean getting the system phased out a bit earlier? When feuduty was phased out in Scotland there was an initial lengthy period of it being compulsorily redeemed on sales, eventually leaving just a small number to be mopped up by the final abolition.