Doubling ground rents

Ybe

Is a leasehold flat with a £175 ground rent which doubles every 25 years likely to be hard to sell in future?

Mr.Generous

I'd have thought prices double on everything about every 20 years, so I wouldn't think its a big problem.

Marky4040

Ybe said:

Is a leasehold flat with a £175 ground rent which doubles every 25 years likely to be hard to sell in future?

Yes and no. Check the original builder signed up to the UK gov scheme of giving you the option to fix the ground rent at its original figure forever. 
It's done via a Deed of Variation with whoever now own's the Freehold. 

Once ground rent goes above £250 lenders often won't lend on the property because the lease turns into a tenancy of some sort which makes it much easier for the Freeholder to take the property from you if you don't pay the ground rent. Someone else can probably explain it better but that's the bare bones of it.

On-the-coast

Could be a problem on a 999 year lease - it’ll hit 48 Trillion Pounds in years 975-999
seriously there’s nothing to worry about at that rate. I doubt it’ll even keep up with inflation. 

Edit… doubling in 25 years = inflation at 2.8% per year. 

RHemmings

There is a consequence of doubling ground rents that is sometimes missed. If the owner wants to extend the lease in the future, part of what has to be paid to the freeholder is a calculation of future rent. If there are doubling or RPI clauses in the leasehold, then this can make the cost of extending the lease by statutory lease extension much more expensive.

Mr.Generous

RHemmings said:

There is a consequence of doubling ground rents that is sometimes missed. If the owner wants to extend the lease in the future, part of what has to be paid to the freeholder is a calculation of future rent. If there are doubling or RPI clauses in the leasehold, then this can make the cost of extending the lease by statutory lease extension much more expensive.

Which if it doubled every 10 years would be a concern. But at 25 years how many doublings would you worry about?

25 years ago I have a feeling that a decent house could be purchased for £100k. Now got to be more like £300k

Just looked it up

Average price for all property types, from December 1999 to April 2019 for Wales and England

September 2000

£55,447  (Wales)

£83,590  (England)

NameUnavailable

The main issue is that when it exceeds £250 (outside London) your lease will be an AST and failure to pay ground rent could enable the freeholder to apply to the court to forfeit your lease which they would be obliged to permit. If that happens you suddenly have no home and if you have a mortgage you'd have to pay it in full (so lenders are reluctant to lend against such places).

So yes, it might be difficult to sell again in the future.

You can extend the lease and the ground rent drops to peppercorn but with a doublng ground rent clause, the cost to extend is much higher than a fixed ground rent.

Recent reforms, if/when made law, will make it less expensive to extend the lease.

RHemmings

Mr.Generous said:

RHemmings said:

There is a consequence of doubling ground rents that is sometimes missed. If the owner wants to extend the lease in the future, part of what has to be paid to the freeholder is a calculation of future rent. If there are doubling or RPI clauses in the leasehold, then this can make the cost of extending the lease by statutory lease extension much more expensive.

Which if it doubled every 10 years would be a concern. But at 25 years how many doublings would you worry about?

The problem with doubling ground rent, even if every 25 years, is that it can make it expensive to do a statutory lease extension. I did the sums on a local flat with a long lease but ground rent that is about to go over £250 (outside London) in about 5 years time under different scenarios. Even doubling every 25 years make the amount that needs to be paid as future ground rent very high, into the tens of thousands. And, that's with current discount rates. There is some talk (no more than talk yet) that the discount rate may be decreased in the future when marriage value is abolished. This would make a statutory lease extension much more expensive in the doubling case.

And, mortgage lenders don't like doubling ground rent, nor ground rents over £250 (outside London). So, I was thinking that a statutory lease extension would get rid of the ground rent. But, at too much of a price. 

So, even if I planned to buy a property and sell it before the next doubling (not the kind of thing I would do, but as a thought experiment) the doubling ground rent could be a problem if it makes a lease extension too expensive. 

NameUnavailable said:

The main issue is that when it exceeds £250 (outside London) your lease will be an AST and failure to pay ground rent could enable the freeholder to apply to the court to forfeit your lease which they would be obliged to permit. If that happens you suddenly have no home and if you have a mortgage you'd have to pay it in full (so lenders are reluctant to lend against such places).

So yes, it might be difficult to sell again in the future.

You can extend the lease and the ground rent drops to peppercorn but with a doublng ground rent clause, the cost to extend is much higher than a fixed ground rent.

Recent reforms, if/when made law, will make it less expensive to extend the lease.

This is not necessarily true. Leaseholds with only a short time remaining will likely become less expensive to extend due to the abolition of marriage value. But, if the discount rate is reduced, then extending leases over 80 years may become more expensive. E.g. see here: https://homehold.org/standard-article/leasehold-reform/   

(Note: I'm not saying that this change will happen, just pointing out that it is being taken seriously by some people.)