1 bed flat - Lease 993 with Ground rent £300 RPI review 10 years

CLSNP · 2023-10-12T10:32:01+00:00

Hi All, We are in the process of buying a 1 bed flat in near London Zone zone 8 that is relatively new, build in 2016. Currently the ground rent is at £300 and the review period is in January 2026 and it is being reviewed by RPI every 10 years at 1st October- 31st September Financial year. We are looking to live in the flat for about 10 years and then sell it. However, we are worried that the ground rent will increase a lot because of the inflation and we wont be able to sell it in 10 years time. We were thinking about deed of variation or extending the lease to get it to 0 but both of this would cost a lot. We are also not sure if we can even increase 990 years lease to more as well. Any advice would be very helpful as we are thinking to pull out..

Username82y · 12/10/2023 12:11

Why on earth would you spend money on the lease?

JohnnyM · 12/10/2023 12:14

Zone 8 is not London. The reason this matters is that a ground rent of over £250 per year outside London is very likely to create mortgage and/or future sale issues. In London the threshold is over £1000.

If you do manage to get a mortgage and buy, yes, you would need to agree a deed of variation to change it, but there is no way around having to pay what could be a significant sum (called a premium) to compensate the freeholder for loss of ground rent (plus their legal costs).

If the £300 did not rise with inflation the premium would be around £5000. However, if the RPI link means it essentially keeps it current value for the freeholder, then I would guess the premium would be something like 993 x £300!!! I am not an expert on calculating net present values so please do try and find some way to verify that if you can.

High ground rents and uplifts (e.g. doubling every 10 years or RPI increases) are essentially a money making scam used on leasehold builds over the last 20 or so years. They are now banned but only on new leases since 2022 I think. It is possible a future Government will do something retrospective but don't hold your breath. For context, the Ground rent on our current flat (art deco 1930s block in zone 3) is currently £75 and increases every 25 years by £25.

You can do a (statutory) lease extension after you have owned for 2 years, which would also get rid of the ground rent. But you would pay the same premium for the loss of ground rent to the freeholder, plus an additional premium and their surveyor and legal costs (likely higher than for just a deed of variation).

But with a lease of the current length there would be no need to extend and it would add zero value to the property over and above what getting the ground rent sorted by deed of variation would.

Lastly, for what it's worth, would I buy a flat with that level of ground rent and review clause? No chance.

Twiglets1 · 12/10/2023 13:26

What is zone 8?

Original poster

CLSNP · 12/10/2023 13:47

The ground rent will keep increasing every 10 years on RPI like this.

OP posts:

Username82y · 12/10/2023 13:48

Twiglets1 · 12/10/2023 13:26

What is zone 8?

Probably Coventry

Original poster

CLSNP · 12/10/2023 13:48

London zones 1 - 9. Apparently after zone 6 properties are not part of London.

OP posts:

LIZS · 12/10/2023 13:49

Never heard of zone 8!

monpetitlapin · 12/10/2023 13:53

RPI is about 10% right now. 10% of £300 is £30. Not the end of the world really.

If your ground rent/service charge isn't enough to build up a pot of money that covers basic maintenance of the building, you could find yourself with an unmortgageable property. It's better to have a bit of ground rent/service charge than none, from my recent experience as a buyer. We have just had to pull out of buying a flat as ours was unmortgageable for this exact reason - the service charge and ground rent were almost nothing and no one had maintained the building so it would need major works in the near future, and no bank would lend on it in the end.

monpetitlapin · 12/10/2023 13:57

The reason this matters is that a ground rent of over £250 per year outside London is very likely to create mortgage and/or future sale issues. In London the threshold is over £1000.
Sorry this is utter cobblers.
Two examples:
https://www.rightmove.co.uk/properties/133942043#/?channel=RES_BUY
https://www.rightmove.co.uk/properties/132741551#/?channel=RES_BUY

Check out this 3 bedroom apartment for sale on Rightmove

3 bedroom apartment for sale in Hanstead House, Bricket Wood, St. Albans, AL2 for £1,725,000. Marketed by Fine and Country, St Albans

https://www.rightmove.co.uk/properties/133942043#/?channel=RES_BUY

Lochroy · 12/10/2023 14:17

I thought London only had six zones? missed the point of the thread

MrsDanversGlidesAgain · 12/10/2023 14:22

monpetitlapin · 12/10/2023 13:53

RPI is about 10% right now. 10% of £300 is £30. Not the end of the world really.

If your ground rent/service charge isn't enough to build up a pot of money that covers basic maintenance of the building, you could find yourself with an unmortgageable property. It's better to have a bit of ground rent/service charge than none, from my recent experience as a buyer. We have just had to pull out of buying a flat as ours was unmortgageable for this exact reason - the service charge and ground rent were almost nothing and no one had maintained the building so it would need major works in the near future, and no bank would lend on it in the end.

Ground rent and service charges are two different things.

PinkRoses1245 · 12/10/2023 14:24

I can't understand why you'd extend the lease? We sold a 85 year lease flat in London (zone 3) with no issues, recently. 990 is great. That sounds very common to have that in a lease, we had a leasehold with the council and our ground rent and service charge increased with RPI each April. I doubt you'd be able to negotiate it.

MrsDanversGlidesAgain · 12/10/2023 14:26

Lochroy · 12/10/2023 14:17

I thought London only had six zones? missed the point of the thread

So did I, but it appears there are these zones going up to 15. No idea on what basis they are decided, Oyster only goes to Zone 6.

Fare zones 7–9 are ancillary zones of the Travelcard and Oyster card fares scheme managed by Transport for London, used for calculating fares from some stations outside Greater London that are not in zones 4, 5 and 6.[note a] Travelcards are available on Oyster with validity in these zones. They are not included in the validity of National Rail out-boundary Travelcards unless mentioned in the Route section as "AAA LDN ZONE 7-9". Fare zones 10–15 (or A–F by their hexadecimal number) have fares set by National Rail train operating companies and the zones themselves are not publicised. The fare zones are outside Greater London, typically more than 16 miles (26 km) from Piccadilly Circus.

Gotta say I'm none the wiser

Original poster

CLSNP · 12/10/2023 14:28

My concern is the ground rent increase according to RPI in 2 years and the resale after 10 years. How much would the ground rent increase on a basis of RPI?

OP posts:

Lochroy · 12/10/2023 14:33

Clear as mud @MrsDanversGlidesAgain

It just sounds like estate agent speak 😂

kitchenhelprequired · 12/10/2023 15:07

Similar age flat, freehold belongs to builder, very recent deed of variation to peppercorn ground rent cost around £1,000. Not London, ground rent was £250 previously and would have been an issue for a mortgage but can't remember exactly what the issue was on that front)

kitchenhelprequired · 12/10/2023 15:10

Isn't it the ground rents that double every 10 years that are to be avoided?

JohnnyM · 12/10/2023 15:17

@monpetitlapin

Why do you think this is 'cobblers' when there are numerous articles such as below?

https://www.crombiewilkinson.co.uk/site/blog/news/the-leasehold-reform-ground-rent-act-2022

https://www.mplaw.co.uk/insights/news/the-ground-rent-issue/

Why do you think the Government banned this under the The Leasehold Reform (Ground Rent) Act 2022, if it was not creating issues for leaseholders?

Why do you think linking to two expensive properties on Rightmove, that have ground rents above £250, somehow makes this issue go away?

Muppet.

DoodleDoo37 · 10/11/2023 19:26

JohnnyM · 12/10/2023 12:14

Zone 8 is not London. The reason this matters is that a ground rent of over £250 per year outside London is very likely to create mortgage and/or future sale issues. In London the threshold is over £1000.

If you do manage to get a mortgage and buy, yes, you would need to agree a deed of variation to change it, but there is no way around having to pay what could be a significant sum (called a premium) to compensate the freeholder for loss of ground rent (plus their legal costs).

If the £300 did not rise with inflation the premium would be around £5000. However, if the RPI link means it essentially keeps it current value for the freeholder, then I would guess the premium would be something like 993 x £300!!! I am not an expert on calculating net present values so please do try and find some way to verify that if you can.

High ground rents and uplifts (e.g. doubling every 10 years or RPI increases) are essentially a money making scam used on leasehold builds over the last 20 or so years. They are now banned but only on new leases since 2022 I think. It is possible a future Government will do something retrospective but don't hold your breath. For context, the Ground rent on our current flat (art deco 1930s block in zone 3) is currently £75 and increases every 25 years by £25.

You can do a (statutory) lease extension after you have owned for 2 years, which would also get rid of the ground rent. But you would pay the same premium for the loss of ground rent to the freeholder, plus an additional premium and their surveyor and legal costs (likely higher than for just a deed of variation).

But with a lease of the current length there would be no need to extend and it would add zero value to the property over and above what getting the ground rent sorted by deed of variation would.

Lastly, for what it's worth, would I buy a flat with that level of ground rent and review clause? No chance.

Really not sure where you are getting this info from? I have flats in excellent locations outside London where ground rent is £350 per year and I could sell them tomorrow if I wanted to. And I bought them knowing this.