We’ve been buying a house since January 2nd, and one of the reasons it’s been taking so long is because it’s a leasehold property.
Leasehold is different to freehold as you only ‘rent’ the ground the property sits on, you don’t own it and you will only own the property for a certain length of time- determined by how many years are left on the lease.
Most flats, like the one we’re buying, are a leasehold. And normally buying a leasehold property isn’t a problem as the flat has lots of time left on the lease. But if the lease has less than 70 years left before it expires then a bank may not be willing to give you a mortgage – and then it becomes a BIG problem.
As we found out when we were looking at ours. Everyone makes it sound like it’s a very easy process too but no one really explains what happens so when we agreed to buy our property with a short lease, we were doing so blind. This post is about the process we went through, and hopefully gives some advice on what to expect if you’re going to buy a leasehold property or planning on extending a lease. If you’re not doing either of those things then you’ll probably find the rest of this post very boring. So i’d switch off now if I were you.
Our Leasehold Extension Story:
Our flat had only 73 years left, and most of our family said this would be fine (even the lawyers!) as they knew a bank would still be happy to lend to us. But at 3am the day before we put our offer in I sat bolt upright in bed and felt the need to research what buying a leasehold property actually means.
Thankfully I did! It turns out that at 73 years we wouldn’t have a problem, but if we ever came to sell the flat then our buyers wouldn’t be able to get a mortgage and we’d be forced to extend the lease. This site is incredibly useful if you’re looking to extend a lease.
Now the lease extension wouldn’t be a problem, except the current owner let the lease drop below 80 years…
80 is a sort of magic number, below which the cost of extending the lease increases exponentially because of something called the marriage value — where a proportion of the flats value is added to the lease extension price. In our case it would probably cost upwards of £10,000 plus lawyers fees.
If you want to extend the lease on your property check the Lease Extension calculator out. Using it to understand roughly how much ours might cost meant we were able to put two figures in when we offered on the flat. One high one if the seller extended the lease herself and another lower one (£10k lower) if we had to do it ourselves.
This two-tier system came with it’s own problems though:
1) If we extended the lease ourselves we’d either have to wait two years (a legal requirement you would also have to abide by) before we had the rights to issue an extension notice — in which case the price would have more than likely gone up — or the seller could start the process and we’d have to find an extra £10k in the next two months.
2) Since we didn’t have a casual 10k lying around (if we did we wouldn’t be buying such a small flat in the first place!) we were hoping that the seller would extend it.
Of course, knowing our luck with this flat, she said no.But we were lucky, we managed to negotiate with the seller so that the price of the flat included the lease extension.
This means that on the day of completion the seller’s solicitor will transfer the price of the lease extension to the freeholder, and the rest of the money will go to the seller. We then absorb the price of the lease extension into our mortgage payments.
On the day we move in the flat will have a lease of 999 years which is effectively a freehold, and will add value to the flat immediately and we won’t have to pay ground rent. So fingers crossed this will all be worth it! But, after six months of paperwork and complications I’m starting to believe the process of extending a lease is not as easy as it sounds.
Once this is over, I’m going to make a pact never to even look at a leasehold property again, but if you’re looking to buy a flat then follow my top tips of things to know before you buy a flat with a lease or if you’re considering extending your lease:
Pros of buying a leasehold property:
- If you’re used to renting a property and calling on a landlord when things go wrong, a leasehold is a sort of in between where you can still call on a landlord for major work (in our case, we could call them about the roof or walls but not about any problems inside) but get to handle all the day-to-day problems yourself. Like weaning yourself into home responsibilities…
- As long as you know all the terms and costs, and the management company are nice then it’s not too different to owning a freehold.
- You may still have to get permission to keep pets/ make changes to the property.
- You will have to pay a service charge, and possibly ground rent. These can add up to thousands and you should check that the money is being spent appropriately and not being reaped in by dodgy management companies who don’t do the promised work. (In our case we already live in the complex so know that a lot of routine maintenance is carried out and can see where the service charge is being spent).
- If the lease is short (nearing or under 80 years) you’ll probably have to spend a fairly large amount of money extending the lease.
Top tips for buying a leasehold property:
- If you’re looking to buy a flat, then ask how long the lease is for and how much service charge and ground rent are.
- If the property has a lease nearing the 80 year mark be aware that you will probably have to extend the lease in the near future. It will be worth extending it before it hits 80 years as it will save you money in the long run.
- If the property has a lease lower than 80 years ask the seller to find out how much it will be to extend the lease, and make an offer accordingly. You are entitled after two years to add 90 years to the lease but you can get more added. To find out the exact price of the lease you have to get in touch with the freeholder, who will get a valuation of the property to calculate the marriage value. This can take up to a month.
- If the seller refuses to extend the lease then be aware that you will have to either wait two years before you have the rights to extend it yourself or you’ll have to ask them to start the process, in which case you’ll have to find several thousand pounds relatively quickly.
- It is possible to add the lease extension to your mortgage, but you have to negotiate this with the seller first, as they will have to undergo the lease extension process for you so that it can happen on the day you complete.
- Depending on the freeholder they might make you adhere to strict deadlines, ours didn’t which may have actually led to the sale being dragged out.
- You will have to pay for the legal fees of all parties- since we asked the seller to extend the lease this meant three sets of legal fees which amounted to nearly £1500.
- One thing that’s been incredibly infuriating for a control freak like me has been not being able to shout at the freeholder and sellers solicitors when they move at the pace of a snail, particularly when we’re paying their fees.
- If anything goes wrong, the freeholder has little vested interest in sorting it quickly. Yes they’re getting your fee for extending the lease but they don’t care about the fact you’re buying a house or that you want anything sorted quickly. Our freeholder went on holiday for six weeks in the middle of the process so we couldn’t get anything signed and it delayed the process exponentially.
If you have any questions about the process feel free to ask me, i’ll do my best to answer!
Love, Harriet x