Ground rent increase linked to RPI

RedCannon94

Just had it confirmed today by our solicitor that our ground rent isn't something that say doubles after x years but instead it's increase is based on RPI every 10 years (Review scheduled for November 2024)

Currently the ground rent is £200 per year. Property 380,000

From what they said, there's a chance they can get this agreed with the lender without the need for a DOV / Indemnity policy. Does this sound right as from my likely wrong calculations below, I'm not sure? (Natwest to be specific but without the Lenders handbook I can't see their exact stance on RPI based increases, just it doubling)

Anyone with experience in a similar situation in terms of this specific increase?

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Some specifics from the lease:

'It's determined by multiplying the initial rent by the latest index value of the index last published before the relevant review date and dividing the result by the base figure'

From my own calculations it's 200 x 376.40 = 75280. When divided by 257.7 (RPI figure from Nov 14) = 292

user1977

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

subjecttocontract

Sounds entirely reasonable......
So, increase less than £10 a year for the last 10 years.

RedCannon94

subjecttocontract said:

Sounds entirely reasonable......
So, increase less than £10 a year for the last 10 years.

In theory, it'll rise above the 250 amount during the course of the mortgages. 

Fully appreciate my conveyencer has a duty to the Lender with this. In this position, should he be outlining to the lender that everything's suitable?

RedCannon94

user1977 said:

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

Did find it weird that all they mentioned was the £250+ part. 

In theory, my conveyancer should be approving this with the lender then?

user1977

RedCannon94 said:

user1977 said:

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

Did find it weird that all they mentioned was the £250+ part. 

In theory, my conveyancer should be approving this with the lender then?

The £250+ bit is because that level makes it an assured tenancy.

Your conveyancer doesn't need to do anything with the lender about it, it should just be ticked off like all the other standard requirements. Unless there was something more specific in your papers about it (e.g. the valuer made a specific assumption about ground rent and that needs corrected).

RedCannon94

user1977 said:

RedCannon94 said:

user1977 said:

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

Did find it weird that all they mentioned was the £250+ part. 

In theory, my conveyancer should be approving this with the lender then?

The £250+ bit is because that level makes it an assured tenancy.

Your conveyancer doesn't need to do anything with the lender about it, it should just be ticked off like all the other standard requirements. Unless there was something more specific in your papers about it (e.g. the valuer made a specific assumption about ground rent and that needs corrected).

Ohh I see. So really, they should confirm with the lender the ground rent situation is fine BUT when the rent does rise above it (Next November), assured tenancy kicks in meaning if we get into arrears, the property could be repossessed. Correct? Would this not still require the indemnity policy to be taken out?

user1977

RedCannon94 said:

user1977 said:

RedCannon94 said:

user1977 said:

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

Did find it weird that all they mentioned was the £250+ part. 

In theory, my conveyancer should be approving this with the lender then?

The £250+ bit is because that level makes it an assured tenancy.

Your conveyancer doesn't need to do anything with the lender about it, it should just be ticked off like all the other standard requirements. Unless there was something more specific in your papers about it (e.g. the valuer made a specific assumption about ground rent and that needs corrected).

Ohh I see. So really, they should confirm with the lender the ground rent situation is fine BUT when the rent does rise above it (Next November), assured tenancy kicks in meaning if we get into arrears, the property could be repossessed. Correct? Would this not still require the indemnity policy to be taken out?

Ah right, sorry, I hadn't taken in that the increase went over £250. That's the problem, the reason why it's risen doesn't matter, so don't focus on the RPI bit.

RedCannon94

user1977 said:

RedCannon94 said:

user1977 said:

RedCannon94 said:

user1977 said:

There's nothing in NatWest's answer to this point in the Lenders' Handbook which suggests they even need to be asked: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/national-westminster-bank-plc/#C9113

Indexed is always going to be preferable to doubling or anything else which isn't even loosely related to actual inflation rates.

Did find it weird that all they mentioned was the £250+ part. 

In theory, my conveyancer should be approving this with the lender then?

The £250+ bit is because that level makes it an assured tenancy.

Your conveyancer doesn't need to do anything with the lender about it, it should just be ticked off like all the other standard requirements. Unless there was something more specific in your papers about it (e.g. the valuer made a specific assumption about ground rent and that needs corrected).

Ohh I see. So really, they should confirm with the lender the ground rent situation is fine BUT when the rent does rise above it (Next November), assured tenancy kicks in meaning if we get into arrears, the property could be repossessed. Correct? Would this not still require the indemnity policy to be taken out?

Ah right, sorry, I hadn't taken in that the increase went over £250. That's the problem, the reason why it's risen doesn't matter, so don't focus on the RPI bit.

Yeah so if this is the case and indemnity is 100% needed, will try to get the vendor to get the process underway to buy the freehold, transfer it to us upon moving and try to reduce our offer to cover part of the freehold cost

eddddy

RedCannon94 said:

Yeah so if this is the case and indemnity is 100% needed, will try to get the vendor to get the process underway to buy the freehold, transfer it to us upon moving and try to reduce our offer to cover part of the freehold cost

As you mention 'buying the freehold' - I assume you're talking about a house, rather than a flat.

And I assume you mean you'll tell the vendor to start the formal legal process for buying the freehold - called "statutory enfranchisement".


Unfortunately, that won't remove your lender's requirement for indemnity insurance. The vendor might start the process for buying the freehold before completion, but the lender has no guarantee that you will complete the process.

You might decide to drop out - leaving the £250+ ground rent in place.


Also, bear in mind that you will probably need the freehold purchase price in cash (as well as whatever deposit you're intending to pay for the house)

With a £200 ground rent rising with RPI, I suspect the freehold might cost £10k+.

RedCannon94

eddddy said:

RedCannon94 said:

Yeah so if this is the case and indemnity is 100% needed, will try to get the vendor to get the process underway to buy the freehold, transfer it to us upon moving and try to reduce our offer to cover part of the freehold cost

As you mention 'buying the freehold' - I assume you're talking about a house, rather than a flat.

And I assume you mean you'll tell the vendor to start the formal legal process for buying the freehold - called "statutory enfranchisement".


Unfortunately, that won't remove your lender's requirement for indemnity insurance. The vendor might start the process for buying the freehold before completion, but the lender has no guarantee that you will complete the process.

You might decide to drop out - leaving the £250+ ground rent in place.


Also, bear in mind that you will probably need the freehold purchase price in cash (as well as whatever deposit you're intending to pay for the house)

With a £200 ground rent rising with RPI, I suspect the freehold might cost £10k+.

Morning Eddddy. 

Correct, it's a house. 

We're in agreement that we don't believe we'll be fine to proceed without the indemnity policy. We were a bit confused when our solictior said it may not be needed. We're happy to take out the indemnity policy anyway. 

Having spoken with some more people on this, we'll definitely push the vendor to begin the process. One question fro you is how long would this take them to get into a position where it's been passed over and we can manage it post-move in? 

Fully aware of the costs associated. Fortunately in a situation where over the coming years where we would be able to cover the cost of this. Calculators online vary on what we'll pay. Some say 3-5k with others closer to 10k. Any calculators you suggest for getting quotes? 

Thanks in advance