Lease extension cost with rising ground rent

gwynlas

Is there any indication that you would be able to purchase a share of the freehold in the future? If so at this point you could increase the lease to 999 years and negate ground rent. A lease with 118 years left is long enough many start at 99 years. your lender should not be that concerned at the moment and reforms are being discussed.

tfridays16

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

It ends at £3,600 at the end of the lease term, and so yes with the doubling will go over £1,000 eventually. Yes, is is concern over people being able to obtain a mortgage in the future.

tfridays16

eddddy said:

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

I guess you mean the AST threshold. I don't think the OP has mentioned where the flat is.

The threshold is £1000 in London, and £250 elsewhere.

• So if it's in London, the ground rent won't go over the £1000 threshold for about 80 years. So assuming 30 year mortgages, it will be 50 years before mortgage lenders are worried.

• But it will go over the £250 threshold in 18 years - so mortgage lenders will be worried about any mortgage today that is over 18 years long.

However...

• Just about all mortgage lenders will accept indemnity insurance for that (but there are still risks to the leaseholder)

• It looks like the Renters (Reform) Bill which is currently going through parliament will remove the £1000 / £250 ground rent 'loophole' - so it should stop being an issue

But there seems to be a general sentiment amongst buyers that high ground rents (and especially doubling ground rents) are bad - so maybe it's a good idea to remove it.

I did say it's in London, probably got lost amongst the rest of my rambling haha. During the full term of the lease, the ground rent will eventually go over £1,000 (hence why my solicitor has raised this). However, thank you so much for explaining re. when this might start to be over concern for mortgage lenders as that makes things a lot clearer to me.

Yes, I've read up on indemnity insurance and the planned reforms, I think they hope to make to easier to extend leases also.

I'd of course prefer for the clause to just be removed so will see how that goes, but I at least don't feel so doom and gloom over it all now! Hopefully will find a resolution.

tfridays16

gwynlas said:

Is there any indication that you would be able to purchase a share of the freehold in the future? If so at this point you could increase the lease to 999 years and negate ground rent. A lease with 118 years left is long enough many start at 99 years. your lender should not be that concerned at the moment and reforms are being discussed.

I will certainly ask my solicitor to check that out. I'm a cash buyer, so not an issue for me, but a concern for selling on in the future.

user1977

eddddy said:

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

• But it will go over the £250 threshold in 18 years - so mortgage lenders will be worried about any mortgage today that is over 18 years long.

But if Parliament does even the teensiest bit of leasehold reform, surely they'll update the relevant limits somehow - it seems improbable that that won't happen within the next 18 years.

tfridays16

user1977 said:

eddddy said:

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

• But it will go over the £250 threshold in 18 years - so mortgage lenders will be worried about any mortgage today that is over 18 years long.

But if Parliament does even the teensiest bit of leasehold reform, surely they'll update the relevant limits somehow - it seems improbable that that won't happen within the next 18 years.

Let's hope so, regardless of my situation, it is definitely needed. For my situation, I'm in London so have a bit longer until I'd hit the £1,000 limit as eddddy pointed out, 50 years, and I'd certainly hope they'll be reform in that time. No guarantees though I guess.

eddddy

user1977 said:

eddddy said:

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

• But it will go over the £250 threshold in 18 years - so mortgage lenders will be worried about any mortgage today that is over 18 years long.

But if Parliament does even the teensiest bit of leasehold reform, surely they'll update the relevant limits somehow - it seems improbable that that won't happen within the next 18 years.

Yes - I agree. And like I say, the relevant bill seems to be going through parliament already.

So will mortgage lenders (and solicitors) be pragmatic and say "We won't ask for indemnity insurance - because surely parliament will update the legislation within the next 18 years"? Or will they ask for it anyway - until the legislation is passed?



And the plan isn't to update the limits...

It's pretty clear that parliament never intended the legislation to apply to long leasehold properties - it was a mistake in drafting.

So the "fix" will be to explicitly say in the legislation that it doesn't apply to long leasehold properties. (So the limits become irrelevant.)

user1977

eddddy said:

user1977 said:

eddddy said:

bouicca21 said:

Whilst doubling every 25 years isn’t much of a problem in itself, it sounds as though there is no cap, so it will eventually go over the magic £1000. That may well be a mortgage-ability problem, so I think OP is right to be concerned.

• But it will go over the £250 threshold in 18 years - so mortgage lenders will be worried about any mortgage today that is over 18 years long.

But if Parliament does even the teensiest bit of leasehold reform, surely they'll update the relevant limits somehow - it seems improbable that that won't happen within the next 18 years.

So will mortgage lenders (and solicitors) be pragmatic and say "We won't ask for indemnity insurance - because surely parliament will update the legislation within the next 18 years"? Or will they ask for it anyway - until the legislation is passed?

Even if the legislation isn't changed, I think the numbers make it not really worthwhile trying to insure against something which could only possibly be a risk 18 years into the mortgage term.

Richard1212

There's been a lot of chat about potential problems, including from the O/P. But, as I said earlier in the thread, I see absolutely no problem here which should be of any concern, let alone one which could scupper this purchase. Nothing about the planned purchase would bother me in the slightest and IMHO I think that view would be shared by the vast majority except for those who can't afford the measly increase in ground rent.

eddddy

Richard1212 said:

 IMHO I think that view would be shared by the vast majority except for those who can't afford the measly increase in ground rent.

The discussion hasn't really been about being unable to afford ground rent.

It's more about Ground 8 (rent arrears) in the Housing Act 1988 - which makes it mandatory that a Court must grant Possession of your flat to your landlord.


In simple terms, if your ground rent is over £250 outside London, and £1000 inside London - and your rent is 3 months late - there is a very serious risk of losing your flat.

So, for example, if you're admitted to hospital for 3 months, or you're simply disorganised and don't pay your ground rent for 3 months - the results could be catastrophic.