Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • RachelleT
    • By RachelleT 11th May 18, 9:54 AM
    • 2Posts
    • 0Thanks
    RachelleT
    Ground Rent doubling every 20 years...
    • #1
    • 11th May 18, 9:54 AM
    Ground Rent doubling every 20 years... 11th May 18 at 9:54 AM
    Hi all,

    I would like some advice please.

    I am in the final stages of buying a Shared Ownership 1-bed flat costing 275,000.

    I have just found out that the ground rent on a 125 year lease is going to start at 250 per year, doubling every 20 years. This will mean that by the time the lease is up, the ground rent will be 16,000 per year!

    As it is a shared ownership scheme, it doesn't affect me now, but it will affect the sale ability of the property. Especially as not all mortgage lenders will agree to this lease.

    Please may I get your thoughts on whether I should still go ahead with the property?

    I do not want to take the high-risk with just the hope that the government will create a law to abolish these kinds of ground-rent costs.

    Any help is appreciated. Thank you.
Page 1
    • davidmcn
    • By davidmcn 11th May 18, 9:57 AM
    • 9,069 Posts
    • 9,656 Thanks
    davidmcn
    • #2
    • 11th May 18, 9:57 AM
    • #2
    • 11th May 18, 9:57 AM
    I have just found out that the ground rent on a 125 year lease is going to start at 250 per year, doubling every 20 years. This will mean that by the time the lease is up, the ground rent will be 16,000 per year!
    Originally posted by RachelleT
    Which is roughly equivalent to what 250 125 years ago would be worth now. I think it's the ones which e.g. double every 10 years which are more problematic.
    • RachelleT
    • By RachelleT 11th May 18, 12:24 PM
    • 2 Posts
    • 0 Thanks
    RachelleT
    • #3
    • 11th May 18, 12:24 PM
    • #3
    • 11th May 18, 12:24 PM
    Thank you, that is useful to know
    • thelem
    • By thelem 11th May 18, 1:36 PM
    • 759 Posts
    • 557 Thanks
    thelem
    • #4
    • 11th May 18, 1:36 PM
    • #4
    • 11th May 18, 1:36 PM
    Doubling every 20 years is equivalent to an annual inflation rate of just under 3.6%. That's higher than the govenment's target of 2% and higher than inflation has been over the last decade, but it's much lower than inflation was in the 70s.

    So, in itself it's not something to worry about too much, but it might put off potential future purchasers.
    Note: Unless otherwise stated, my property related posts refer to England & Wales. Please make sure you state if you are discussing Scotland or elsewhere as laws differ.
    • westernpromise
    • By westernpromise 11th May 18, 5:18 PM
    • 4,263 Posts
    • 5,548 Thanks
    westernpromise
    • #5
    • 11th May 18, 5:18 PM
    • #5
    • 11th May 18, 5:18 PM
    Over 125 years you'd pay 395,000 in ground rent. If you started at 250 and went up by the BoE's inflation target of 2% a year, you'd pay 136,000 over the same period. The difference, 260,000 over 125 years, is what this lease is worth to the freeholder.

    If I've done it correctly in Excel, a cashflow that returns 260,000 over 125 years has a Net Present Value at a discount rate of 2% of just under 50,000. If you used a rate of 4% it falls to 26,000. In effect your vendor is selling you the flat for 275k or whatever and can then sell the lease on for another 25k meaning they get 300k of which only 275k, the nominal selling price, is transparent to you.
    Buying a house, if you believe the market has a way to fall, or if you are paying sill asking prices ( like some sheeple ) or if you are buying in London, is now a massive financial gamble!!!!! - June 8, 2012 by TheCountOfNowhere
    • John-K
    • By John-K 11th May 18, 6:27 PM
    • 654 Posts
    • 1,024 Thanks
    John-K
    • #6
    • 11th May 18, 6:27 PM
    • #6
    • 11th May 18, 6:27 PM
    But why would you use the current BOE target rate for a 125 year period?
    • Tom99
    • By Tom99 12th May 18, 2:04 AM
    • 2,991 Posts
    • 2,060 Thanks
    Tom99
    • #7
    • 12th May 18, 2:04 AM
    • #7
    • 12th May 18, 2:04 AM
    Over 125 years you'd pay 395,000 in ground rent. If you started at 250 and went up by the BoE's inflation target of 2% a year, you'd pay 136,000 over the same period. The difference, 260,000 over 125 years, is what this lease is worth to the freeholder.

    If I've done it correctly in Excel, a cashflow that returns 260,000 over 125 years has a Net Present Value at a discount rate of 2% of just under 50,000. If you used a rate of 4% it falls to 26,000. In effect your vendor is selling you the flat for 275k or whatever and can then sell the lease on for another 25k meaning they get 300k of which only 275k, the nominal selling price, is transparent to you.
    Originally posted by westernpromise
    The discount rate for a fixed ground rent will be more like 6% pa so NPV of 250pa doubling every 20 yrs is only NPV 7,666.

    If rent went up in line with inflation and inflation was 2.5% pa (pretty low historically) the NPV would be 6,124

    So basically very little difference.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

137Posts Today

1,515Users online

Martin's Twitter
  • "Sabrina, you're young. I'm not sure you've the experience I'm looking for in a business partner." Eh? Isn't the pr? https://t.co/IeTxBQq2OU

  • I am predicting the word myself will be misused 6 times in today;s boardroom. What do yourself think? #TheApprentice

  • Not sure how I ever succeeded running a successful entreprise? After all my gardening and garden design skills are? https://t.co/FFnvkjsGDU

  • Follow Martin