The Current Situation Regarding Leasehold Scandal & Ground Rents

25 September 2017
leasehold

As we already know pressure from the National Leaseholder Campaign has resulted in the first debate on leaseholds in the House of Commons for many years also a statement and promise in the Queen’s Speech to stamp out leasehold abuses.

When is the lease length considered to be short?
The most important point in the length of a lease is when it falls below 80 years. As soon as that occurs it is considered a short lease and will lose a percentage of its value – from between 5 to 7 % on that day. If a lease falls below 80 years the cost of extending rises considerably. Hence our advice that leases should be extended at 85 years.
The purchaser of a leasehold property must have owned it for 2 years before being entitle to a legal right to extend.

When is ground rent considered to be onerous?
This is now a daily topic in the national press. Previously the RICS stated that a ground rent which is greater or will become greater that 0.25% of the capital value of the property is considered to be onerous.
However, the Nationwide Building Society recently changed its lending criteria on new leasehold properties and has stated that a ground rent which is greater than 0.1% of the capital value is now considered onerous and that it will not lend on such property.
The Council of Mortgage Lenders has announced that it is also considering altering its lending criteria to this level.

What are unacceptable ground rent increases?
There are ground rents that double every 25 or 33 years. The market at the moment doesn’t consider these increases to be aggressive putting purchasers off.
The other method of increases sees ground rents linked to the Retail Price Index (RPI). These are also regarded as fair as this links any increase to inflation.
However, many purchasers are now looking unfavourably on most ground rent increases but it is expected that this resistance will fall away as the national press move on to another subject.

The national press has highlighted aggressive increases where ground rents double every 10 or even 5 years. This has all sorts of implications not least the owner having to pay a higher price when it comes to a lease extension.

Finally:
It is highly likely that the Government will announce a ban on the sale of leasehold houses and even controls on ground rent increases having consulted with the Council of Mortgage Lenders.
For Riverside Park we should be looking at ground rents of no higher than 0.1% of the capital value with increases linked to RPI.