Lease extension cost for escalating ground rent?

RidiculousBehaviour

Hello Forum. Sorry for a very boring (maybe too specific) question. I am a FTB looking at buying a leasehold maisonette in London which has an escalating ground rent. (Potentially not sensible but it's by far the best property we've seen in every other way). 

Ground rent is currently £200 pa doubling every 25 years. According to the seller, it is next set to rise in 18 years (in 2043). The lease has 118 years remaining. So it should look like this:

£200 until 2043

£400 until 2068

£800 until 2093

£1600 until 2118

£3200 until 2143 when the lease expires

The Zoopla estimate for the flat's value is currently £274,000 but I'm not sure how to estimate its value "with a long lease" given that it already has a long lease. No idea really what impact the GR has on the ways it's valued which is why it feels like a bit of an unknown quantity. I'm not planning on moving again quickly once I've bought somewhere but I have to assume I may want to sell within a decade or so, at which point the problem of eliminating or reducing to peppercorn the ground will, I imagine, need to have been solved in order to sell.

None of the lease extension calculators take into account rising ground rent. The Homehold one gives the premium at between £4,000 and £5,000 but I understand it's more when there is escalating ground rent involved. Does anybody know what a ballpark figure might be, or how to calculate it (although I am not maths-y at all).

I know this may become not necessary at all given the upcoming reforms but so far as I understand currently, a lease extension or deed of variation are the only ways round the problem. So I want to have an idea of worst case scenario at the moment.

I haven't made an offer on this place - trying to have an idea of what this might cost in the future before I do so. The asking price is currently offers over £250,000 which seems average-good for the area considering how slow the market is moving at the moment.

Mortgage broker has said my lender would consider it subject to valuer's comments as the GR would not rise above £1,000 for the term of the mortgage (I'm in London).

Thank you in advance to anyone older and wiser than I!

eddddy

If you did a statutory lease extension under the current 'rules', based on your escalating GR numbers, the cost might be about £5k to £6k.

Plus maybe £4k in valuation/legal fees.


FWIW, based on current discussions/speculation... the reforms might reduce the legal/valuation fees (perhaps to around £2k), but the cost of the lease extension itself might decrease or increase.

If the government try to introduce legislation that reduces lease extension costs for leaseholders, freeholders are threatening to challenge it in court as infringement of their human rights - so it could be a while before it's resolved.

(The £1000 GR 'trap' is more likely to disappear sooner - but that's not really an issue for you.)

RidiculousBehaviour

Thank you, eddddy! It seems like the calculators are fairly accurate in this particular case then. It seems very hard to know how much the estimate might vary (until of course you've paid a valuer) as the calculation seems to be based on so many factors. So I'm grateful to have an idea.

I'm aware of some of the goings-on including the current judicial challenge by freeholders but can't quite keep up with it all - but I suppose that's why I'm assuming that worst case scenario is that I may need to consider the lease extension option.

When you say the £1,000 ground rent 'trap' may disappear sooner, what do you mean, sorry?

eddddy

RidiculousBehaviour said:

When you say the £1,000 ground rent 'trap' may disappear sooner, what do you mean, sorry?

I was referring to the problem with leases in London with ground rents over £1000 being treated as an AST - which worries mortgage lenders.

The Renters Reform Bill will make it clear that leases over 7 years cannot be an AST - even if the ground rent is over £1000. So that should remove mortgage lenders' concerns.

The Bill was expected to become law in Summer 2025, but it looks like it may be delayed.

user1977

eddddy said:

RidiculousBehaviour said:

When you say the £1,000 ground rent 'trap' may disappear sooner, what do you mean, sorry?

The Bill was expected to become law in Summer 2025, but it looks like it may be delayed.

And it would have to be a very long delay to affect the OP given they won't hit £1000 until 2093...

RidiculousBehaviour

Thank you both, this is actually fairly reassuring. Lease extension still a lot of money on the face of it but this gives me an idea of how to price this into any offer.