… And look at these dismal resale values
Thousands of pensioners living in older retirement properties are facing a massive hike in ground rents: 88 per cent is not unusual, says Better Retirement Housing
The older leases of mass retirement housing builder McCarthy and Stone are kicking in with huge hikes in ground rents.
Ground rents at Churchill sites rise every seven years with RPI, also creating significant rises.
www.BetterRetirementHousing.com reports the case of Margaret Bennett, 73, who lives at Oak Court in Withington, Manchester, a McCarthy and Stone site of 37 flats built in 1994.
She bought the property as a resale at £72,000 (more below).
Her ground rents rose this year from £310 to £583.89p, a staggering 88 per cent increase.
“When I bought the property two years ago my solicitor did not mention ground rent at all,” says Mrs Bennett. “I lived in a leasehold house before, but bought the freehold. The ground rents for houses around Stockport were £36 a year.
“The ground rents we are all facing are a massive increase for pensioners, many of whom had no idea it was coming.”
It is a similar story at St Richard’s Lodge, Chichester, a Churchill site.
Rosemary Marshall, 76, has seen the ground rent of her one-bedroom flat rise from £550 to £655.86p a year. A 19% increase.
The ground rents are set to be reviewed every seven years throughout the 125-year lease.
A neighbour of Mrs Marshall, with a two-bedroom flat, is paying £715.88p a year in ground rent – the sort of rates seen in prime central London.
The freehold of St Richard’s Lodge was sold in 2013. Churchill retain the headlease, which means it can appoint its own property management arm Millstream to run the site.
Mrs Marshall paid £235,000 for her flat in 2008, which she bought after being widowed.
“We have a great community here, and the neighbours are very nice people,” she says.
“That balances the financial stresses. We feel that we have to watch Churchill all the time when it comes to the charges.
“If the ground rent goes on like this, and the other charges, what is it going to be like in ten years time when I am 86? How am I going to be able to deal with financial problems like this at that age?”
Oak Court follows the usual older McCarthy and Stone retirement picture:
The freeholder here is Fairhold, part of Vincent Tchenguiz’s much diminished empire, and the manager as usual is FirstPort (formerly Peverel). Tchenguiz’s interests account for the bulk of FirstPort’s business.
Ultimately the freehold belongs to the Tchenguiz Family Trust, based in the British Virgin Islands.
However, pension fund investor Rothesay Life, established by Goldman Sachs and other investors, has a £1.8 billion debenture on the ground rent income.
This leaves the Tchenguiz interests with only the income from redevelopment, insurance commissions, consent fees, subletting fees and the rest.
Both income streams are gathered by Estates and Management Limited.
Robin Mackay, of Wyndham Court in Yeovil, has been warning of this situation for some time.
He said: “Retirement ground rents should be included in the review of onerous ground rents launched by Sajid Javid, the Communities Secretary.”
Land Registry resales at Oak Court, which was completed in 1994, tell a familiar story of plummeting values in retirement housing:
Flat 1
2016-12-02 £45,000
2002-03-14 £49,000
1996-01-26 £53,500
Flat 11
2017-05-26 £57,500
2012-06-01 £54,000
Flat 15
2016-05-31 £58,500
1995-01-30 £49,000
Flat 18
2015-08-13 £50,000
2010-06-28 £77,950
1999-10-22 £45,000
Flat 20
2014-03-28 £48,000
2007-03-16 £87,000
Flat 22
2016-10-07 £72,000
2010-03-30 £99,950
2000-04-12 £60,000
Flat 28
2003-08-06 £68,000
2002-04-11 £43,500
Flat 29
2009-06-15 £88,000
1995-01-16 £57,500
Flat 30
2004-05-05 £92,500
1995-04-28 £49,500
Flat 33
2016-03-15 £38,000
2015-11-30 £23,500
2006-02-24 £83,000
Flat 35
2016-12-07 £63,000
2004-09-01 £110,000
1998-03-24 £52,700
Flat 37
2017-03-27 £75,000
2011-12-02 £80,000
Flat 38
2002-04-19 £73,000
2000-12-13 £71,000
Flat 4
2016-04-22 £56,000
2010-03-26 £45,000
Flat 6
2012-07-02 £66,000
2004-05-21 £120,000
Flat 8
2001-03-29 £60,000
1995-03-24 £69,000
Flat 9
2014-12-17 £55,000
2000-06-23 £41,000
The trajectory is also downwards at St Richard’s Lodge:
Flat 10
2016-06-09 £152,500
2011-11-22 £187,950
Flat 16
2012-05-04 £90,000
2010-02-26 £199,950
Flat 17
2016-01-19 £150,000
2011-07-06 £169,950
Flat 21
2017-03-24 £140,000
2009-08-14 £199,950
Flat 24
2014-10-09 £165,000
2009-11-06 £219,950
Flat 27
2017-03-16 £177,250
2010-05-28 £209,950
Flat 32
2015-03-27 £159,995
2011-10-27 £187,950
Flat 33
2016-03-18 £149,995
2011-05-20 £169,950
Flat 37
2016-03-17 £170,000
2009-02-05 £195,950
Related posts:
Anti-ground rent trade body ARCO snubbed at retirement housing conference … (along with us, less surprisingly)
McCarthy and Stone: Ground rents are not the future of retirement housing
Ground rents to be allowed in retirement housing, says government
Did government cop-out on retirement ground rents stuff new thinking in the sector?
APPG July 11: Robust debate over retirement ground rents and event fees
Protestors gather outside ANOTHER housebuilder: Galliford Try
Excellent expose and analysis.
As I wrote to the DCLG (and I have only a few aging brain cells) RPI reviews are not automatically less onerous. Leaseholds do not sell at or near the published RPI rates in the review period. (And bear in mind HPI always outstrips RPI so it’s even worse, innit).
Freeholders can use learned Graphs of Theoritivity to claim there will always be an uplift in value if a leaseholder goes for an extension, and meanwhile can hike ground rents using those built in RPI reviews.
The leaseholder sells for what they can get in the real world, and buyers apparently do not read them graphs.
A safe GR is a fixed amount over longer intervals than 15 years at a low start rate. Given the freeholder has a built-in nice little earner as the reversion increases with the lease depreciating, there are no grounds for the ground rent to be more than token.
I was reviewing a property auction catalogue from the mid 1920′ and ground rents were often £2 to £6 per annum. This was typically the average weekly wage of an employee.. so today’s rents if anything are less of the average wage than they were some 80-90years ago
Almost without exception ground rents of long ago were fixed and the concept of doubling started in the 1970s when inflation was rife (25% per annum was known in the early 1970’s)
The mistake made was instead of linking it to the RPI guesses were made as to how long inflation would take to erode the value of the rent and often review periods of 25/33 years were chosen . If the guess is wrong then either the landlord or the tenant loses out. Far better is to have it linked to an index where the rent rises or falls in line with the RPI – better still would be to have it linked to average earnings so that the rent can never become onorous to income . Certainly in the case of retirement blocks having it linked to the state pension would be preferred.
The Nationwide seem to be actively supporting this proposal
I see ground rent as part of the consideration a landlord seeks for the granting of the lease. Provided it is crystal clear what the terms are then I don’t see why it should be considered unfair . It is almost dishonest to take a lease on after having had the property valued before purchase. Spend some time prior to commuting to the purchase reflecting on the deal and then after completion argue that part of the consideration you offered should be cancelled.
I believe that the ground rent terms should be shown in the prescribed clauses of the lease (a new box LR6.1) and the NPV of the rent should be calculated using a statutory discount rate so the lessee has full knowledge of the ground rent implications before buying. Ideally signing right next to box 6.1 to confirm they have read it!
An 88% increase is of course in line with the RPI and was of course a term shown in the lease
To put some counter balance on this the state pension has risen by more than 88% over the 23 years so as a percentage of a pensioners income the amount has fallen
What this article throws up is the need for the upcoming rent to be warned about much earlier and possibly the need for the ground rent terms and the potential rise in the future to be clearly advised each year when a ground rent demand is sent
If the government sought to stop indexing linking of the state pension there would be mass protests so outlawing of indexed linking if ground rents would not be an equitable solution – communicating the future rises would be a better idea
Another great write-up LKP.
The point here is the onerous nature of the initial ground rent value set by the modern developers or landlord especially in retirement housing.. Comparing RPI on low income state pensions and onerous ground rents is comparing apples and pears. All these economic models people quote, well they are just mechanisms inherent to justify a system that generates money for them. Because its in the lease doesn’t justify it,.
One auction catalogue doesn’t define the historical GR values for all properties. Its easy to find leaseholders confirming low ground rents of £50 pa held for 33 years or similar on thousands of properties. The fact that is the SCUM in the city try to find every opportunity of monetising or thieving money from a feudal system that even our colonies have thrown out, Scotland got rid of these preposterous laws years ago.. Even colonies with leasehold still in operation, leaseholders can buy the freehold for about 10 times the ground rent, try that in England. A number of countries with living standard well above England manage without leasehold. It is not required in this day and age.
I don’t know what it is about the English who like being bent over and prodded in the derriere and keep on saying more, more more!