Purchasing Freehold

[Mercenary Keyboard Warrior]

Suck it up - My stamp duty is £20K on £460K house that I am about to buy and there is talk of them changing it in future to house sellers pay stampduty - so when I come to sell it....

Thats actually been pretty much dismissed, but its an ever present risk that someone could implement.

I would actually prefer to see a buying and selling tax, half the current rate roughly, and only base it on the net cash amount of the deal. As opposed to simply a purchase tax.

If they did move to basing it on selling they could always give a credit for the amount paid on purchase for any properties bought pre tax change. This isn't hard to control due to relatively low amount of properties and the fact the amounts are already known to HMRC.
I actually prefer the taxation on sale as a theoretical tax, it also works to pick up the gain made on the house in a more equitable way than taxing on the purchase and then allowing any gains to be tax free. Its generally doing a better job of matching ability to pay against when the tax is paid, however in cases of distress such as a repo then it could increase conflict a bit more. Eg HMRC wanting its tax and the lender looking to recoup its money.

 

[Semple]

Thats odd, since it doesn't mention the starting index value, in direct or indirect terms.

I would expect the formula to be new R = (Initial R * (C-O)) / R................ where R is rent, C is current index and O is old index.
Indexs dont tend to be constantly reset, the index may be say 160 (meaning its up 60% vs the start point).

Thats either very badly written or they have another bit to go with it.

I should have probably mentioned, in the summary of wording they refer to the base value as the value of the RPI at the point the lease commenced. The lease started in September 2010 and the value of RPI in August 2010 was 4.7% (https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23).

So for mine the calculation would be... New Rent = (Current Rent * Current RPI) / 4.7

This also means that for the ground rent to go up, the RPI must be above 4.7%. Over the last 10 years (120 months), the RPI has only gone over 4.8% 17 times (mostly around the time of the recession, and it was only slightly above 5%).

There's obviously a clase in the lease to say that if the newly calculated rent is less than the existing rent, then the existing rent would remain until the next review.

Suck it up - My stamp duty is £20K on £460K house that I am about to buy and there is talk of them changing it in future to house sellers pay stampduty - so when I come to sell it....

That's been put to bed as a non-starter.

But that's not to say someone one implement it later on, just the same as scrapping stamp duty altogether.

 

[One More Solo]

We are at an early stage of purchasing our freehold. It seems like a no brainer because acquiring it will add to the value of the house (in theory) and our mortgage provider will extend our facility to purchase it. I am not banking on it, but I think there is also the outside chance with all the current brouhaha around leasehold that developers will cave and pass them on to homeowners (as some have already done) or there will be an opportunity to claim compensation down the line.

I accept a degree of fault for not doing my own research, but equally the implications of acquiring a leasehold house were never clearly set out during a purchase process which is confusing enough as a first time buyer.

 

[Mercenary Keyboard Warrior]

I should have probably mentioned, in the summary of wording they refer to the base value as the value of the RPI at the point the lease commenced. The lease started in September 2010 and the value of RPI in August 2010 was 4.7% (https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23).

So for mine the calculation would be... New Rent = (Current Rent * Current RPI) / 4.7

This also means that for the ground rent to go up, the RPI must be above 4.7%. Over the last 10 years (120 months), the RPI has only gone over 4.8% 17 times (mostly around the time of the recession, and it was only slightly above 5%).

There's obviously a clase in the lease to say that if the newly calculated rent is less than the existing rent, then the existing rent would remain until the next review.



That's been put to bed as a non-starter.

But that's not to say someone one implement it later on, just the same as scrapping stamp duty altogether.

Thats really wierd.
Normally the index is a point in time vs the starting point in time, not the specific RPI at a point in time compared to the prior year.
Eg more like this, so 2015 is the base year for our index right now.
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l522/mm23

So using the one I linked it shows 90.4, and today 107.9, so I would expect a calculation today to take 107.9-90.4 = 17.5 plus 100 giving the relative change to be 117.5%

In effect you would expect the rent to go up 17.5% Eg (assuming ground rent £250 at start) = Base * index change / base = (250 * 1.175) / 250 = 293.75

I just reread your example and think you may be wrong. These are normally in reference to the index (and it mentions the index specifically), vs a fixed point, (they restate backwards for earlier years), rather than the specific RPI change which is normally expressed as an annual number for headlines.

 

[Mercenary Keyboard Warrior]

We are at an early stage of purchasing our freehold. It seems like a no brainer because acquiring it will add to the value of the house (in theory) and our mortgage provider will extend our facility to purchase it. I am not banking on it, but I think there is also the outside chance with all the current brouhaha around leasehold that developers will cave and pass them on to homeowners (as some have already done) or there will be an opportunity to claim compensation down the line.

I accept a degree of fault for not doing my own research, but equally the implications of acquiring a leasehold house were never clearly set out during a purchase process which is confusing enough as a first time buyer.

A few scenarios exist. If the developer still has the leaseholds then its pretty easy for them.
What when a developer had already sold it on, ok possibly a misselling option, but what about if the developer sold on and went pop. Are the people who purchased it (legally) going to be forced to sell it back cheaply?
Its a whole can of worms, but I suspect on current developments the developers are more likely to revert to just selling freehold, the cash benefit has pretty much been offset by the negative press

 

[Semple]

Thats really wierd.
Normally the index is a point in time vs the starting point in time, not the specific RPI at a point in time compared to the prior year.
Eg more like this, so 2015 is the base year for our index right now.
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l522/mm23

So using the one I linked it shows 90.4, and today 107.9, so I would expect a calculation today to take 107.9-90.4 = 17.5 plus 100 giving the relative change to be 117.5%

In effect you would expect the rent to go up 17.5% Eg (assuming ground rent £250 at start) = Base * index change / base = (250 * 1.175) / 250 = 293.75

I just reread your example and think you may be wrong. These are normally in reference to the index (and it mentions the index specifically), vs a fixed point, (they restate backwards for earlier years), rather than the specific RPI change which is normally expressed as an annual number for headlines.

Yeah I suspect you're right in that it's using the index rather than percentage change.

The definitions state this:

"the index" means the Index of Retail Prices (All Items) published H M Government or any official publication substituted for it

Although i'm not sure about the "index change". Looking at the wording specifically:

The revised rent for any review period is to be determined at the relevant review date by multiplying the initial rent by the latest index value of the index last published before the relevant review date and dividing the result by the base figure

I read that as (Initial Rent * Latest Index Value) / Base Figure.

To throw in some numbers as if the rent review was today, assuming initial rent was £250 at the start, and base figure as of August 2010 (start of lease):

(250 * 289.5) / 224.5 = £322.38

 

[Mercenary Keyboard Warrior]

Yeah I suspect you're right in that it's using the index rather than percentage change.

The definitions state this:


Although i'm not sure about the "index change". Looking at the wording specifically:


I read that as (Initial Rent * Latest Index Value) / Base Figure.

To throw in some numbers as if the rent review was today, assuming initial rent was £250 at the start, and base figure as of August 2010 (start of lease):

(250 * 289.5) / 224.5 = £322.38

Yes your right I think thats what they are trying to say. My formula was wrong, in effect they are saying Initial Rent x (new rate / old rate). So is in effect just an inflation uplift for the whole period, which is basically trying to keep it the same in relative terms.

 

[Semple]

Yes your right I think thats what they are trying to say. My formula was wrong, in effect they are saying Initial Rent x (new rate / old rate). So is in effect just an inflation uplift for the whole period, which is basically trying to keep it the same in relative terms.

Thanks for making me look over it again anyway. They always seem to unnecessarily overcomplicate things with legal waffle. Based on the fact that initial rent and base figure will always be the same value, i don't know why they don't just put the calculation in as (250 * latest index value) / 224.5. It's almost like the legal profession are a bit lazy when it comes to outlining things that need calculating