Ruth in Portsmouth has asked: "what is ground rent?" Johnsy covers what ground rent is and addresses the attitudes towards ground rent within the market and how it's changed over time.
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Please see below the full transcript of the video:
Hi and welcome to the latest Ask Johnsy. We’re now back in the office, we had a period, obviously, at home with coronavirus and we’re back in, sort of 50% at the moment. So, we’ll be in new surroundings because we’re in new offices now in Pulford near Chester. So, this is our new base, and this is where I’m going to be doing a lot of the videos from moving forward.
The latest question has come from Ruth in Portsmouth and we’ve got quite a few questions through over this period. This question is: “What is a ground rent?”
Well, a ground rent is a rent that’s paid on an annual basis from the landlord of the property to the owner of the land as per the lease. This has been a bit of a hot-potato recently in that previously, developers had looked to resell the freehold after selling out a particular development, let’s say off-plan, to a freeholder that’s looking to obviously increase the income and what they’re doing is they’re increasing ground rents unnecessarily and over the rate of inflation. So, there’s been a lot of thought that there’s going to be legislation in this area to restrict how much ground rent increases by and as I say, it’s a real hot potato at the moment and everybody’s asking about it.
This has really been governed recently by lenders and lenders just say no to ground rents that are too high and forcing developers in order to change what the ground rent is. Now, a lot of them are limiting ground rent to £250 or 0.1% of the purchase price and the key thing there as well is, how often it is reviewed and how it’s reviewed and the general consensus in the market is that it’s reviewed every 5 or 10 years and not in-between then so, you have a certain grace period and a certain amount of time that it’s fixed for and also that it is index-linked to the RPI which is the Retail Price Index and that’s the way that most lenders are going for now.
And that is effectively what a ground rent is. So, thank you for joining us on Ask Johnsy again. If you’ve got any questions please email us again at Ask Johnsy, the email will come up in a second. Thank you for watching and I’ll see you next time on Ask Johnsy.
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