Ground rent increasing with RPI every 10 years? What do I do?

Tr33house

I am in the process of purchasing a flat with £250 ground rent that increases with RPI every 10 years.

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

In real world terms if the RPI is 10% it’s £25 more after 10 years and I may not still be living there in 10 years, nevertheless does anyone know how much of a problem this is?

The flat is in Chertsey, Surrey so not in London (although within the M25). The Solicitor has asked for a deed of variation to remove this but I do not know if the seller will be able to make that happen.

I also question how anyone purchased the flats as new builds in 2018 if this was an issue? Any advice or thoughts on this issue? Thanks.

user1977

Tr33house said:

I also question how anyone purchased the flats as new builds in 2018 if this was an issue?

Because like many other things, criteria were different back then. And to the extent anybody thought about it, maybe they hoped the relevant legislation would be updated well before the 10th anniversary came up (which of course it might still do, being a fairly non-controversial and simple bit of law reform).

anselld

Tr33house said:

In real world terms if the RPI is 10% it’s £25 more after 10 years and I may not still be living there in 10 years, nevertheless does anyone know how much of a problem this is?

That is incorrect.   If RPI is 10% per year for 10 years then it will be approx £648. 

eddddy

Tr33house said:

In real world terms if the RPI is 10% it’s £25 more after 10 years and I may not still be living there in 10 years, nevertheless does anyone know how much of a problem this is?

I'm not sure if you're getting confused with your numbers.

Where are you getting 10% from? If you're thinking of recent news about a 10% increase in RPI - that's for 1 year, not for 10 years.

For example, if a ground rent review was due now, RPI has increased by about 51% over the last 10 years - so your ground rent would increase to £377.


And just to clarify, you mention not living in the flat for 10 years. The review dates don't begin based on the date you buy the flat - they begin based on the date the lease was first granted. So the next review could be due in 5 years or 2 years or 1 year or 6 months or whatever.

Tr33house said:

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

The problem might be that the ground rent will increase to over £250, which makes it easier for your freeholder to repossess your flat if you don't pay. Usually mortgage lenders accept indemnity insurance for this (instead of a deed of variation).

Tr33house said:

The Solicitor has asked for a deed of variation to remove this but I do not know if the seller will be able to make that happen.

Solicitors often suggest this - and buyers sometimes assume this will be easy to do.

Essentially, what the seller will say to their landlord/freeholder is...

• "When I bought this flat, I promised to pay you rent of £250 per year, increasing with RPI every 10 years"
• "But now I would like you to agree to accept less rent, please."

The landlord/freeholder is not obliged to agree to accept less rent. They might not even bother replying to the request.

But if the landlord/freeholder does agree to accept less rent, they will almost certainly ask for a lump sum payment now as compensation.

CSI_Yorkshire

Tr33house said:

I am in the process of purchasing a flat with £250 ground rent that increases with RPI every 10 years.

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

RPI-linked ground rents, although seen as better than ground rent doubling, could actually turn out to be even worse.

[Deleted User]

See if you can get a figure for reducing it to a fixed peppercorn. Then ask the vendor to pay it, or reduce your offer appropriately.

If it can't be fixed at some trivial amount, don't buy it.

RedCannon94

Tr33house said:

I am in the process of purchasing a flat with £250 ground rent that increases with RPI every 10 years.

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

In real world terms if the RPI is 10% it’s £25 more after 10 years and I may not still be living there in 10 years, nevertheless does anyone know how much of a problem this is?

The flat is in Chertsey, Surrey so not in London (although within the M25). The Solicitor has asked for a deed of variation to remove this but I do not know if the seller will be able to make that happen.

I also question how anyone purchased the flats as new builds in 2018 if this was an issue? Any advice or thoughts on this issue? Thanks.

Similar position here, albeit house rather than flat.

If you 'really' want the flat, would suggest checking if the indemnity cover is accepted by Barclays, adjust your offer and then discuss extending the lease with the owner and it can get reduced to peppercorn. 

Having to take a similar approach on the house (Requested 5k off the asking price and asked the owner to get the ball rolling with buying the freehold, or in your case, sorting the extension)

michael1234

CSI_Yorkshire said:

Tr33house said:

I am in the process of purchasing a flat with £250 ground rent that increases with RPI every 10 years.

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

RPI-linked ground rents, although seen as better than ground rent doubling, could actually turn out to be even worse.

I know this thread is a few years old but could you or anyone tell me why increases with RPI could be worse than doubling? Is it because if inflation goes over about 7.2% then that is a doubling every 10 years ?

DullGreyGuy

michael1234 said:

CSI_Yorkshire said:

Tr33house said:

I am in the process of purchasing a flat with £250 ground rent that increases with RPI every 10 years.

My solicitor has said this may be a problem with my lender - Barclays - as increasing ground rent is a problem.

RPI-linked ground rents, although seen as better than ground rent doubling, could actually turn out to be even worse.

I know this thread is a few years old but could you or anyone tell me why increases with RPI could be worse than doubling? Is it because if inflation goes over about 7.2% then that is a doubling every 10 years ?

Doubling over what period?

Our ground rent does double but 1) its very 25 years so actually represents a low interest rate and 2) we are in London and so the problem is when ground rent hits £1,000 not £250. 

The challenge with RPI is the variability... we could say with absolute certainly when ours will pass the £1,000 threshold when our lease suddenly becomes much easier to lose and know its after the mortgage is paid off. 7.2% RPI sounds high to us these days but it was in double digits last year and over 25% in the 70s, the lender will be worried that a sustained period of high inflation could bring the ground rent over £250 and so the property becomes easier to lose and their charge on the property to protect their lending is suddenly massively weaker