Be Careful How Long Is Left On A Lease
If you are looking to buy any leasehold property, often a flat, then you should carefully look at the lease in place. Indeed, the majority of flats are sold as leasehold properties, not freehold properties, and therefore it is important to know how many years ownership you are getting, because this can impact on value and how easy or hard the property will be to resell in due course.
So, most importantly, how long is left on the leasehold? This will clearly be documented and it should be one of the very first things that you look at.
As the years tick down, often from 99 years, then of course the length of the lease reduces proportionately, and as it does, then the property becomes less attractive to new owners and also to mortgage lenders, many of whom have a cut off where they will stop lending.
Some get twitchy and refuse to lend around the 75 year mark, some cut off at 70 years. Anything less than that and it can become very tricky to get a mortgage: the value of the property falls and mortgage lenders aren't willing to lend against it. This is why many consider extending the lease when it starts to get towards a low number such as this.
In the future this could all possibly be less of a problem, as now many new flats that come onto the market are for 999 years or at least well over 100 years, so this should negate this being a problem for a considerable time.
If someone currently owns a flat, and they need to consider extending the leasehold because it is getting towards one of these lower numbers, then they can apply to increase the leasehold. And if the flat has been owned for two years, then the leaseholder can insist on the lease being extended by the leaseholder, there is legislation in place to enforce this through a Leasehold Reform Housing and Urban Development Act (from 1993).
Of course, checking out the length of the lease is important not just when you are looking to buy a property, but when you have one too. And years can go quickly. So remember that you should keep an eye on the length of your lease once you own the property too, and have 80 years in mind as the cut-off where things can get tricky below: and of course lease extension gets more costly too below this amount.
When you buy freehold property, then you don't have the above potential complications to take into account, and indeed freehold properties are the option of choice for most people. But as outlined above, flats typically are on a leasehold basis, and so it is important to understand what a leasehold means, how long is left on a lease, and how to go about increasing the lease if you need to. And if buying a property, beware of how long is left on the lease and whether it is already a problem or could become one soon. You don't want to buy a property then struggle to get a mortgage purely because of the length of time left on the lease.Last update: 11 Jun 2015
More first-time house buying articles:
- Finding a Bargain Property
- Things to Note when Buying at Auction
- Buying a new build
- Repayment and Interest Only Mortgages
- Finding a Property and Location