Ground Rent Capitalisation rate?

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    Ground Rent Capitalisation rate?

    Hi All,

    I'm just wondering what the Ground rent capitalisation rate should be. Is there a calculation or spreadsheet someone can point me in the direction of?

    East London Flat (block of 2 in total)

    Flat values are around £300k each

    Remaining Length of lease (both flats on same terms): 115 years

    Ground rent is £350 per year increasing with CPI each year.

    Thanks everyone

    #2
    There are a number online which you can find, but there will only be estimates between 6-8k is probably what you will be looking at, but would imagine a lengthy negotiation with the freeholder on the final amount.

    Comment


      #3
      Yes, none of the online calculators seem to allow for rising ground rents. But why bother? You have 20 years before it's the slightest concern in respect of affecting sale of your property. in which time odds are new legislation will favour lessees.

      Comment


        #4
        If the ground rent is reviewed every year, the lease terms may not be able for your buyer to get a mortgage. The CPI index applies to EU and you may be able to get the CMA to declare it does not apply too UK after Brexit.

        If the yield on commercial shop property in your area is about 5% , make an offer to pay £350 x 20 = £7000 for extending your lease by statutory 90 years lease extension at peppercorn ground rent .statutory.

        Comment


          #5
          There is growing feeling as long term interest rates have fallen to 0.1% and there is a real possibilty of rates going negative that the capitalisation rate may need to fall. I mentioned this a few years back

          https://forums.landlordzone.co.uk/fo...eferment-rates

          The All saints case Case [ ref CHI/21UC/OCE/2017/0025 St Emmanuel House, 6 Darley Road, Eastbourne BN20 7GD ] set a figure of 3.35% and that was where teh rent was reviewed every 15 years. Yours is every year so it would be reasonable to think that a lower figure would be appropriate

          To value the rent you take the current rent and divide it by the percentage rate

          So if you want to capitaise at 3% you would divide the current rent by 0.03 - this works when the period is very long and needs to be even longer if the rate reduces

          Comment

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