Would you buy a leasehold property with ground rent linked to RPI?

[kinleigh]

Currently in the process of selling our home and buying a new property. The property is leasehold, but we didn't realise it increases by RPI every 5 years. Apparently this causes issues with mortgages so we are waiting to see if they will still lend us the money.
The ground rent is currently £270 per year.
We are downsizing and struggling to find a suitable property. It is at least 30-40 k cheaper than any other slightly suitable property. And we do love it.
What would you do?
It's not so much the cost of the lease, but the risk when/if we come to sell. Also there are some restrictive covenants, which won't affect us apart from having to ask permission to build a garage.
There's currently an act going through parliament that would help but not definite it will go through.
Arrrgh !

On the plus side, the increase is linked to a known figure and will not just be plucked out of the air by a freeholder who needs to make a bit of cash.

Also, I doubt if you will ever find anywhere these days where the ground rent in a fixed unchanging amount (they did use to exist my DF paid a flat rate per annum for his flat in S London).

If there is nothing else against the place, I'd take it.

I agree with the PP.
There is a mechanism for calculating the increase so it is not subject to random and/or unreasonable increases.

An increase every 5 years is unacceptable to most lenders, as the ground rent is likely to become high enough to devalue the property during the mortgage term.

The fact that it is already over £250 a year is also a negative (unless you are in London).

Speak to your solicitor about the sellers looking into a Deed of Variation to reduce it to a peppercorn in line with current legislation.

If it's new, why are they selling it leasehold rather than freehold? ( It doesn't sound like it's a flat?)
Is there a service charge too?

Agree with previous posters. I wouldn't touch this without a deed of variation capping the ground rent permanently at £250.

It will be unmortgageable and you are wasting your time incurring any costs without establishing a verbal indication at least, that the freeholder will agree a D of V.

We are selling a flat with this issue - not all lenders object: Barclays and Halifax are usually fine. Legislation is coming and there’s also a statutory extension of lease that can reduce the ground rent. Most freeholders will not do a deed of variation for this / why would they limit their incomes now in circumstances where they know the govt will do it eventually

Yes as some posters have said in most cases a deed of variation is requested and entered in to. Some freeholders refuse but it still needs to be reported to the lender. If the lender does not accept and there is no deed of variation if the buyer still wants to proceed they could find a different lender.

No, I wouldn’t.

Thank you for all your responses. It's an 11 year old house so just in the timeframe before they were banned from new builds. Our solicitor has asked for the deed of variation so I guess we'll have to await the outcome. Shocking these were ever allowed in the first place!

When my former employers was developing these, they sold ground rents for between 16 and 25 x the value of annual rent. Can you buy the freehold and negotiate a price reduction as part ofvthe deal? Another facet to these leaseholds is that the freeholder charges fortunes for admin requests.

It is a really bad idea to consider buying this property.

You will have issues with finding a lender willing to give you a mortgage and it will be an issue when you want to sell it.

Most buyers these days tend to avoid leasehold flats to start with and would not touch leasehold houses with a bargepole.

Find a freehold property instead and save yourself a lot of hassle...

Yes we would definitely look into buying it, it's just the unknown amount we are worried about. AI reckons around 10-12k as it's an increasing one. I'm thinking if the new reforms get passed it would make it easier/ cheaper to buy?

That's the problem, we can't find a freehold house of similar value. I guess it's cheaper for a reason 😕

Freehold flats are rare and most lenders won't lend on them. Until the government sorts out commonhold (which I don't think will work very well either), loads of people are stuck buying leaseholds.

Share of freehold flats are very common and lenders have no issue with them at all. Similarly a ground rent tracking RPI is not somethin to be afraid of. Mumsnet has a very weird approach to both leasheold properties and terraced or semi detached houses. I just assume that these posters who wang on about leaseholds being unmortgageable and and worthless and terraces and semis being pretty much uninhabitable have never left the suburbs and have no idea of the range of properties that fall into those categories.

Share of freehold flats are common and there are no issues with lenders.

Freehold flats are indeed rare and lenders won't lend on them.

Flats in general in big cities like London have become much harder to sell because of concerns about leasehold, ground rents and the cladding issues.

I had a lease about 25 years ago where the ground rent doubled every 10 years, which is obviously insanity. I can’t remember if I had it altered when I extended the lease, or if it was part of the new leasehold agreement after I extended (I was very naive) and I sold the flat like that. I hope you get it sorted OP.

Well, you said freehold rather than share of freehold in your first reply @Greenseacat. It sounds like we're both in the industry.

PP said freehold property in their earlier post though which made sense because OP is buying a house. You were the first one to mention freehold flats as far as I can see.

I’d be cautious about focusing only on the fact that the increase is linked to RPI. The more important question is what the ground rent could become over time and whether the clause causes problems with lenders or future buyers.

I’d ask the conveyancer specifically about the review clause, the current ground rent, how it is likely to increase and whether the lender is happy with it. I’d also want to know whether a deed of variation is realistic before committing.

There’s a straightforward guide to leasehold ownership here which explains some of the lease terms worth checking before buying:

https://thesilverbrief.blog/leasehold-property-guide/

DS has a house like this. Are you in the NW?
The increases aren’t unreasonable and haven’t been a problem in the ten years he’s lived there. Check there aren’t any other obligations though, eg management fees or service charges.

Thank you for your replies, we have had lots to think about. We have unfortunately decided to pull out of the purchase. Between the lease and management fees, there was just too many rules and restrictions.

Thanks for the update OP, probably for the best. There is always another house.