There was an excellent article in the Saturday Times yesterday, supported by a leader (see above).
The gist of the article was that prices of retirement flats have plummeted in the face of costly management charges and ground rents. One example cited was Risingholme Court, where costs amounted to £8,153.15. The flat was bought in 2009 for £197,000. After the owner died, the family put it on the market but managed to sell it for only £18,000.
The article claims that their analysis of Land Registry data suggests that £3bn could have been wiped from the value of such retirement homes as a result of predatory charges.
Separate research by Eumaeus shows that the ground rents are payable to Fairhold Homes (no. 19) limited, one of the many companies whose income is charged to our friends Rothesay Life.
So actual (and prospective?) Rothesay pensioners are being paid from the income from such ground rent income streams. It is not inconceivable that some of these pensioners are living in such retirement homes, and so paying themselves a pension out of extortionate ground rent fees! Life is strange.
The fall in value of retirement homes raises a challenging prospect for the PRA. A leasehold will typically fall in value each year, reflecting the decrease in value of the implied rental cashflows over the term of the lease. The ground rent present value, by contrast, will rise over time. So at some point we would expect these values to cancel out, with the property becoming worthless. But then the ground rent stream becomes worthless too, and with it the presumed value of forfeiture. Forfeiture is valuable only for forms of tenure that are themselves valuable. Yet Matching Adjustment is allowed by the PRA precisely because the ground rent income streams that collateralise the loan to companies like Fairhold Homes, are deemed to be risk free. Oops!
But are ground rent income streams risk free? A good question, over to you, PRA.