There’s a lot of talk about ground rent of £250 in 2010 becoming £10,000 in 1960. Really? If ground rent doubles every 10 years it becomes £8000 in 2060 but worth only £2159 in todays money at an average inflation rate of 3%.
That’s still outrageous of course – about 8 times the original ground rent but it’s a long way from the £10,000 with which the news media are frightening people!
There was a time when inflation did effectively halve the value of money every 10 years. For example, £10,000 in 1966 was only worth £584 in 2016 which is not quite as bad as halving every 10 years – see the table below which gets you to £313 – but for three of the five 10 year periods shown the value did reduce by more than a half!
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It is of course nonsense for a house to be sold leasehold these days – we are the only country that still do this. However, flats are a different matter because when you own a flat you cannot own the land that the flat is on because there are other flats using the same land which may be subject to maintenance which has to be paid for. Also some flats have a caretaker whose salary needs to be paid. Some leasehold contracts contain limitations of use demanded by the original owner when the land was sold to the developer so there is some sense in their being leasehold arrangements for houses as well as flats but the period should always be 999 years to ensure that the value of the property is maintained for selling on purposes for the foreseeable future and the ground rent should be peppercorn as they say – ie very low. The easiest way to change the law is to insist that if the developer owns the lease for the house he should be obliged to include it in the purchase price of the house so that the purchaser thereby owns the freehold.
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GROUND RENT DOUBLING EVERY 10 YEARS
2010 £250
2020 £500
2030 £1000
2040 £2000
2050 £4000
2060 £8000
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INFLATION HALVING THE VALUE OF MONEY EVERY 10 YEARS
1966 £10,000
1976 £5,000 (3860, 10%, 10%)
1986 £2,500 (1573, 9.4%, 9.7%)
1996 £1,250 (1008, 4.6%, 8%)
2006 £625 (776, 2.6%, 6.6%)
2016 £313 (584, 2.9%, 5.8%)
y v (a, i, e)
y = year, v = value halved, a = actual value , i = average inflation over previous 10 year period, e = average inflation over the entire period