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Flat Purchase - Escalating Ground Rent

Hi All,

I've found a flat I'm very interested in, however it has an escalating ground rent and I'm very worried about it impacting future re-sale. I think the seller is aware of this, and seems to be super keen to shed it - she even offered to sell it to me chain free! Any thoughts?

Lease - 236 Years
Ground Rent - £150; doubling every 25 years.

Thanks
«134

Comments

  • year 25 GR = 300
    year 50 = 600
    year 75 = 1200
    year 100 = 2400
    year 125 = 4800
    year 150 = 9600
    year 175 = 19000
    year 200 = 40k
    year 225 = 80k
  • akorn77
    akorn77 Posts: 207
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    year 25 GR = 300
    year 50 = 600
    year 75 = 1200
    year 100 = 2400
    year 125 = 4800
    year 150 = 9600
    year 175 = 19000
    year 200 = 40k
    year 225 = 80k

    Yep...I was planning to live in the flat and then BTL it for a while and then sell up. Time horizon maybe 15-25 years but the re-sale worries me. I'm aware some lenders will decline it
  • Lets look at it objectively.
    How can you say some lenders will decline it...your making an assumption that is years in the future even by your own resale timeline.

    The monetary value of a doubling ground rent in 25 years will be inline with current earnings no doubt.

    When is the next doubling due to happen?
    Is it pending soon...if not then I'm not too sure I would be worried by the situation.

    Service charges on leasehold escalating would be something that I would be looking at more closely as you have less control over those increases year on year.
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  • Most lenders are Ok with doubling every 25 years - it's every 10 years that can be an issue. We've just bought one that doubles every 25 years, and others have sold in the same block without a problem. I think it's pretty standard in some areas, especially amongst more modern flats. (ours is 11 years old)
  • davidmcn
    davidmcn Posts: 23,596
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    Doubling every 25 years is equivalent to just under 3% annual inflation - which is higher than the current general UK rate but historically fairly modest. The "defect" is that it isn't linked to the actual rate of inflation (or, more relevantly, property prices), but it's unlikely to become outrageously high in real terms. I wouldn't be overly concerned about it - as above, something like doubling every 10 years would be more onerous.
  • akorn77
    akorn77 Posts: 207
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    Lets look at it objectively.
    How can you say some lenders will decline it...your making an assumption that is years in the future even by your own resale timeline.

    The monetary value of a doubling ground rent in 25 years will be inline with current earnings no doubt.

    When is the next doubling due to happen?
    Is it pending soon...if not then I'm not too sure I would be worried by the situation.

    Service charges on leasehold escalating would be something that I would be looking at more closely as you have less control over those increases year on year.

    Broker is checking but he said some may not accept double rents.

    Next increase is in 2030
  • eddddy
    eddddy Posts: 16,292
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    akorn77 wrote: »
    Lease - 236 Years
    Ground Rent - £150; doubling every 25 years.

    Are you sure that the lease says the ground rent doubles throughout the whole 236 year period?

    Often, the doubling stops at maybe 100 or 125 years.

    This link gives an overview of lenders' current attitudes on ground rents (but their attitudes may change over time):
    https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1852/

    As examples:
    Nationwide Building Society

    Unacceptable - advise Issuing Office (Will be declined):
    ...
    • Ground Rent greater than 0.5% of the property value
    • Ground Rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years) – acceptable if doubles every 20 years or more
    ...

    Barclays Bank
    Doubling ground rents:
    • Should not double more frequently than every 20 years
    • Should not continue to double after 125 years
    • Ground rent up to 0.1% of the current market value is acceptable
  • akorn77
    akorn77 Posts: 207
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    eddddy wrote: »
    Are you sure that the lease says the ground rent doubles throughout the whole 236 year period?

    Often, the doubling stops at maybe 100 or 125 years.

    Thanks for this. I'll enquire and check if the doubling stops after a certain point. :T
  • What David says below, it doesn't appear to be too onerous and should not be a problem.
    davidmcn wrote: »
    Doubling every 25 years is equivalent to just under 3% annual inflation - which is higher than the current general UK rate but historically fairly modest. The "defect" is that it isn't linked to the actual rate of inflation (or, more relevantly, property prices), but it's unlikely to become outrageously high in real terms. I wouldn't be overly concerned about it - as above, something like doubling every 10 years would be more onerous.

    That aside, personally, I think it very unlikely that the leasehold system (as it curently exists) will survive another 20-25 years in England. There is nothing similar in Australia, North America or continental Europe, and England and Wales remain pretty much the only mature jurisdiction in the world to retain leasehold property laws.

    Even within the UK, legislation passed by the Scottish parliament in the 2000s, effectively brought leasehold to an end in the Scotland.
  • davidmcn
    davidmcn Posts: 23,596
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    Even within the UK, legislation passed by the Scottish parliament in the 2000s, effectively brought leasehold to an end in the Scotland.
    It was never popular here in the first place, only ever featured in a few neighbourhoods and invariably ultra-long leases with trivial rents.
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