Viewing 33 posts - 1 through 33 (of 33 total)
  • Buying a house with a weird ground rent.
  • shannong
    Free Member

    Good Evening everyone, a friend has suggested that I ask on here for a bit of advice if possible. He says that you have been very helpful in the past and I’d really appreciate it if anyone with any kind of appropriate expertise can help me out so that I get my head around all this.

    I’m currently living abroad but I want to move back to the UK in the foreseeable future, so am planning to purchase a property in the UK. I’ve made a cash offer on a flat but have had advice from my solicitor that she is wary about the terms of the ground rent provisions, specifically that because the ground rent is tied to the RPI it could make the flat difficult to sell in the future due to the uncertainty of the actual future sums of money involved. Currently the ground rent is £250:00 PA, plus RPI % increase. I’ve enquired (via my solicitor);

    This is from the vendors solicitor:
    “Ground rent provisions Flat A, **************, London *********.
    The ground rent terms are set out in the lease to your property at clause 1.8 which states as follows:-
    “The Annual Rent” means the annual rent of £250 (two hundred and fifty pounds) per annum rising annually by the increase in the Retail Price Index for the preceding 12 months throughout the term”
    Indexation provision is to protect both the landlord and the tenant. A ground rent that doubles every 25/33 years for example could become onerous to the tenant if inflation is very low indeed or we have deflation. The sole purpose of the provision is to keep the purchasing power of the rent consistent over the term of the lease.
    The Council of Mortgage Lenders rules which sets out guidance as to what is acceptable terms for lending states the following on the subject of ground rents
    5.14.9 We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us (see part 2).
    Readily established
    The indexation provision is readily established as it is by reference to published data by the Office of National Statistics published as we all know monthly
    Reasonable
    Inflation has the effect of reducing the liability to the tenant at the expense of the landlord and deflation has the effect of increasing the liability to the tenant at the benefit to the landlord. I will agree to the rent falling in times of deflation
    Nobody would take on paid employment for a fixed salary of 25/33 years with no adjustment should inflation arise and neither would anyone let a flat on a tenancy for say 99 with no ability to review the rent in times of inflation.
    It is a wholly reasonable provision for the rent to maintain its purchasing power over the term of the lease
    The clause as currently drafted refers to any upward movement in the RPI on reflection this should be excluded and if the RPI falls then the rent should also fall. We would be prepared to enter into a deed of variation to correct that aspect of the ground rent clause for a premium of £750 which includes our costs of preparing the deed of variation.
    The ground rent terms to remain the same and the term increased to 110 years i.e. an increase of 17.5 years for a premium of £5,000 and there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.
    We would be prepared to increase the term to 110 years and have the rent fixed at £300 per annum doubling every 25 years for a premium £9,000 again there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.
    We trust we have supplied all the information required to further your sale.”

    And this was in my inbox today:

    “We are able to offer the following options.
    The ground rent terms to remain the same and the term increased to 110 years i.e. an increase of 17.5 years for a premium of £5,000 and there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.

    We would be prepared to increase the term to 110 years and have the rent fixed at £300 per annum doubling every 25 years for a premium £9,000 again there would be no legal or valuation fees on our side for you to pay and the matter can be completed at the same time as your sale.

    We trust we have supplied all the information required to further your sale.”

    It’s all very confusing!

    Ming the Merciless
    Free Member

    Loads of this on Radio 4 consumer programs. Government are looking to legislate to stop this scam so I’d avoid like the plague.

    twicewithchips
    Free Member

    I think you should listen to your solicitor.

    How long are you thinking of owning the lease?

    RPI isn’t quite the same as CPI (which is now, I think, preferred by gov for its calcs.) Both about 2% at present.

    I think (if I have the sums right) that 2% p.a. doubles the rent after 35 years? £9000 to start at a higher number is the bit I’m having real trouble understanding.

    Hope you find a suitable resolution

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    footflaps
    Full Member

    I’d avoid like the plague, it will be very hard to sell in the future.

    The whole escalating ground rent thing is a massive scam. The house builders sell on the freehold to a 3rd party who can then extort huge sums from future owners using blackmail like contracts (start cheap, but end up exorbitant). The house builder gets extra revenue from this and most buyers don’t spot the con and fall for it.

    It relies on people being so desperate to get on the housing ladder than the don’t spot / ignore the fact that he ground rent could soon be 10s of £k per year, rising continually for all eternity to potentially 100s of £k per year!

    Hopefully this practice will be banned soon and it will be the next miss-selling scandal. Although as the big house builders are typical Tory party funders, maybe not….

    mrlebowski
    Free Member

    Sounds rather iffy to me..

    drlex
    Free Member

    Welcome, new forumite!

    It’s a flat, so ground rent is not unusual, it’s just the RPI-linking that would have me avoid it. I have a couple of commercial leases with RPI on the rent reviews and they are by far the most expensive leases over time, exceeding the market rent.

    Here’s the Grauniad article – New Homes Ground Rent scam.

    (This also mentions footflap’s scam on lease enfranchisement.)

    If you absolutely must have the flat, then at least insist on the doubling every 25 years, but without the £9K premium. This equates to around 2.7% increase p.a. and it’ll stay predictable for future tenants.

    poolman
    Free Member

    One of mine has a ground rent escalation clause doubling every 10 years, its 125 pa now so will be 250, maybe doubling every 20 years i havent got the lease with me.

    Anyway, i m not overly bothered its an investment so tax deductible. I think if it went to 500 i d start trying to buy out the freehold. You have to put the ground rent in perspective, nice flat, nice location, not bad service charges. They sell well so i doubt anyones bothered.

    Service charges and ground rent are facts of life in london, i d buy a house if i could but the upgrade cost at c 300k is out of budget.

    poolman
    Free Member

    Who owns the freehold btw, i had one where the freeholder was a nightmare to deal with. We bought the freehold it took ages as both sides were miles apart, even arguing at arbitration about some minute detail. I d google the freeholder make sure they arent serial arbitration attendees.

    shannong
    Free Member

    Thank you everbody. I’m a really appreciative of all your advice. What a wonderful place Single Track World is.

    Shannon

    smell_it
    Free Member

    I buy and rent/ sell properties in London and would just second drlex’s post. Sensible advice.

    CountZero
    Full Member

    “The Annual Rent” means the annual rent of £250 (two hundred and fifty pounds) per annum rising annually by the increase in the Retail Price Index for the preceding 12 months throughout the term”

    Inflation has just gone up by more than anticipated, but that may just be short-term; however, there have been periods in my memory when inflation was running at between fifteen and twenty-odd percent in the UK, in fact it went from 5% in Jan ’70 to 26.9% in Aug ’75, then back down to 7.4% in Jun ’78, then back up to 21.9% in May ’80, not coming down to below 3% until Dec ’92…
    How a situation like that arising again might affect your situation is waaaaay beyond my meagre financial knowledge, or what the chances of it happening again are I don’t know, but nobody can predict the future.
    Source here:
    https://docs.google.com/spreadsheets/d/1KCPTCEaGSi9OEaoQVzSyEh8xzPSolWwaXd3iwSjw0sU/htmlview

    batfink
    Free Member

    Looks like some good advice above.

    The one thing I would add is: If this has given you/your solicitor cause to hesitate, it will likely do the same to whoever you are later trying to sell it to.

    Even if you are willing take a calculated risk, future buyers may not be.

    mefty
    Free Member

    To buy a rpi gilt (government bond) to yield £250 and rpi thereafter for 25 years would cost about £40,000, so look at the price you are paying for the flat in that context.

    mefty
    Free Member

    Sorry 68,000, forgot to multiply the nominal by the market price.

    shannong
    Free Member

    Thank you so very much everyone, this is all very much appreciated.

    Shannon

    DickBarton
    Full Member

    I’d find somewhere else to live, that sounds overly complicated way of saying the land rent will increase each year.

    trail_rat
    Free Member

    Aye doesn’t seem to just apply to flats these days

    Lots of housing developers sneaking it into new developments then selling on the freehold to unscrupulous companies who just want to line their own pockets.

    With a flat you don’t really have much choice….But with a house is walk.

    tjagain
    Full Member

    My flat is freehold – but that is in Scotland where leasehold is rarer

    retro83
    Free Member

    drlex – Member
    Here’s the Grauniad article – New Homes Ground Rent scam.

    Cheers for the link, what a disgrace. Greedy bastards.

    trail_rat
    Free Member

    Scotland is not in London town.

    Different country different rules.

    Ming the Merciless
    Free Member

    More of this on R4 today regarding new builds. People pressured into buying “as must complete in 28 days” so use the builders recommended solicitor who maybe didnt highlight the implications of the rent rises. People trying to buy the freehold after a few years (original quote £3000) and finding it had been sold on to an investment firm who now want in excess of £12k.

    People now trying to sell the new builds cannot as mortgage companies and solicitors have got wise to the scam and refuse mortgage applications or advise not to buy.

    footflaps
    Full Member

    on topic

    The worsening “nightmare” of the leasehold system in England and Wales is holding millions of homebuyers hostage to exorbitant bills, according to a report by campaign group HomeOwners Alliance, which estimates that landlords are in line to pocket £4bn from lease extensions.

    https://www.theguardian.com/money/2017/apr/05/leasehold-nightmare-cost-homebuyers-billions-report-warns

    bigyinn
    Free Member

    There was something about this on the news the other week.
    Solicitors claiming they have only recently seen this sort of thing happening.
    Surely if they missed the ground rent increase clause and didn’t inform their client (the buyer) then they are not doing their job?

    footflaps
    Full Member

    Solicitors claiming they have only recently seen this sort of thing happening.

    The main house building companies have recently all switched to selling houses as leasehold rather than freehold as this scam makes more money for them, so it’s a new trend.

    Surely if they missed the ground rent increase clause and didn’t inform their client (the buyer) then they are not doing their job?

    Yep.

    footflaps
    Full Member

    Some good news on this subject…

    Overnight, Nationwide building society has made hundreds, and possibly thousands, of new-build flats and houses almost unsaleable – and they should be roundly applauded for doing so.

    In a surprise intervention into the scandal of leasehold flats and houses sold with spiralling ground rents, the society said that from this Thursday it will stop lending against any new-build leasehold flat or house where the ground rent is more than 0.1% of the value of the property. It will also refuse loans on new flats with lease lengths of less than 125 years or new houses with less than 250 years. Developers will now be forced, if other lenders adopt the same policy, to slash the absurd ground rents or find that they simply can’t get any buyers.

    https://www.theguardian.com/money/2017/may/06/nationwide-housebuilders-leasehold-new-builds

    thecaptain
    Free Member

    But a ground rent that starts off below 0.1% and doubles every few years is still ok?

    hols2
    Free Member

    have had advice from my solicitor that she is wary about the terms of the ground rent provisions

    That could be a clue right there.

    rene59
    Free Member

    I know flats are different, but who in their right mind buys a house built on land they don’t own? Bonkers.

    milky1980
    Free Member

    Excellent move by Nationwide, if other follow suit it’ll defuse a financial timebomb!

    …who in their right mind buys a house built on land they don’t own?

    People that are desperate to get on the housing ladder.

    A large portion of the population are not very savvy when it comes to stuff like this, they can be prudent and save up a deposit, manage monthly outgoings etc but when it comes to things like this they rely on the solicitors pointing it out to them. One of my friends nearly made this mistake when looking at a new build house but it was only me mentioning it off-hand (after reading about it on here!!) that prompted them to look into it, the escalation of the charge made them pull out of the sale. Another friend has since looked into it on the new build they bought and they’re in line to pay a LOT of charges over the next 15-20 years. Both friends are highly educated and financially astute in normal day-to-day stuff but this is alien to them.

    cornholio98
    Free Member

    I have a ground rent of 5gbp per year for the next 970 years. Having to buy insurance through a certain provider is a pain.

    People buy what they can afford and what is available. If the only properties available in your area are leasehold what else can you do?

    The increasing charge system and what seems to be being pushed for new builds is out of order really

    drlex
    Free Member

    ..who in their right mind buys a house built on land they don’t own?

    One reason used to be that in the case of estates, it was easier to set up and enforce a maintenance/ service charge on leasehold rather than freehold properties. It then developed into a money-making scheme, as the articles linked to above describe.

    DaveP
    Full Member

    I know flats are different, but who in their right mind buys a house built on land they don’t own? Bonkers.

    I did, with my eyes wide open.

    It is near unique, with lots of interesting features.
    It has communal areas where a lease makes lots of sense.

    geoffj
    Full Member

    Some good news on this subject…

    Except for those poor buggers who’ve already bought one – this could make their property unsaleable.

    It’s the right thing to do, but there are going to be 1000s even more screwed over than before.

    Thankfully I live and own property only in Scotland

Viewing 33 posts - 1 through 33 (of 33 total)

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