herald

Saturday 16 December 2017

Dan White: Don't bother paying off ground rent on homes

Dan White answers your finicial questions

WE have a ground rent on our house. The house was built in 1971 and we purchased it from the original owner in 1975.

We have a 500-year lease and the annual ground rent is €35.55. We paid off our mortgage several years ago.

We feel that the ground rent is so old-fashioned and we wish to buy it out. Can we do this ourselves by approaching the management company – without using a solicitor?

Approximately how much would we have to pay to buy out our ground rent? We have already looked up the deeds and Land Registry and have all the relevant information.

NOREEN

As no new residential ground rents have been created since 1967 I wonder if Noreen has the date for when her house was built exactly right.

However, that's only a minor detail.

The good news for Noreen is that if she wishes to buy out her ground rent she has a legal right to do so and there is no need to employ the services of a solicitor.

She should first attempt to contact her ground landlord or his or her agent. I would be very surprised if they were unwilling to allow Noreen to buy out her ground rent.

With the value of money having declined by approximately 93pc since 1967 most ground rents have shrivelled to virtually nothing in real terms and cost almost as much to collect as they bring in in revenue.

If her ground landlord is unwilling to let her buy out her ground rent, Noreen should contact the Property Registration Authority.

It will arbitrate in cases where the ground landlord and the tenant can't agree on a purchase price.

The formula used by the PRA to determine the purchase price is the sum of money that would have to be invested in long-term Government bonds to produce the same annual income.



FEES

With 10-year Government bonds yielding approximately 4.5pc and 15-year bonds yielding just over 5pc, Noreen should expect to pay somewhere between 20 and 22 times her annual ground rent (€711-€782).

In addition, she will also have to pay some fees. The PRA charges a fee of €105 if it arbitrates on the price.

It addition it also charges a €30 fee for all applications to buy out ground rents, including cases where the ground landlord and tenant have already agreed on the purchase price.

Add it all up and Noreen is looking at a bill of about €750- €920 to buy out her ground rent. My advice is not to bother.

With almost 460 years left to run on her ground lease and the annual payments fixed until the latter half of the 25th century, I can't help feeling that Noreen could find a better use for this money.

I HAVE €20,000 savings with Anglo Irish which are due to mature at the end of the month.

I am obviously nervous about the security of my money in the Irish banking system.

I am looking for a short term investment (ie, one to three years) with a reasonable return.

PATRICIA

Anyone depositing money with the Irish banks needs to keep two things in mind.

Firstly, despite the Government's deposit guarantee, their financial position remains precarious.

Secondly, all of the Irish banks are going to slash the interest rates which they pay depositors once NAMA is up and running. My advice to Patricia is to put her money into Post Office Savings Bonds.

These pay 10pc if held for three years, equivalent to an annual interest rate of 3.23pc.

Not alone do Savings Bonds come with a State guarantee, they are also exempt from DIRT, which currently gobbles up a quarter of the interest paid on other savings products.

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