10 Aug 2018

Couple Buying a New Home

In our last post, we looked at some the pitfalls of buying a leasehold property and why it’s so important to check the terms of your lease. The fact is, finding a property that offers a share of freehold can be tricky, limiting your search criteria in a market that’s already challenging to navigate. Writing off all leasehold homes isn’t always possible, so it’s essential that you know what to look for to find a good deal.

Here are our top tips for buying a leasehold property and making a good investment.

1 – Lease length

The remaining term on the lease is going to have a big impact on the value of the property, both when you purchase it and when it comes to put it back on the market. Although it’s possible to extend the lease once you have lived in the property for two years, the price of doing this increases considerably once the number of years left drops below 80 (consequently dragging the value of the property down with it). Ideally, look for leases that have at least 90-95 years left, although anything about 85 is fine as long as you are happy with extending the lease.

2 – Asking the current owners to extend the lease

If you aren’t happy about the lease length, you can ask the current owners to extend it before you agree to purchase the property. If they get the process started, they can name you as the beneficiary once you move in. This may be a requirement from your lender.

3 – Ground rent

Make sure you check what the annual ground rent will be so you can factor it into your budget. Leases with a flat rate of £300 a year or less are generally nothing to worry about, but if there is any confusing wording about price reviews or rent increases, you might want to steer clear.

4 – Buying the freehold/Collective enfranchisement

Collective enfranchisement is where at least 50% of the apartment owners in a block agree to buy out the freeholder. Just like extending the lease, there is a premium associated with this but it may be worth finding out if the existing tenants have shown any interest in this before you move in. Talk to us for more information about collective enfranchisement – it’s certainly worth considering.

Contact us

If you’re interested in a leasehold property but need more information about lease extensions or collective enfranchisement, please feel free to give us a call. Our RICS-certified surveyors are highly trained to deliver professional, tailored advice for both residential and commercial property, so whether you are the freeholder of a block of flats or a leaseholder looking for advice, we can help.

03 Aug 2018

Classic Victorian houses in London

You won’t have to look for a flat in London for long before you realise that leasehold, not freehold, is the norm. Some buyers might not look twice at this important detail, but it can soon land you in hot water if you’re not sure what you’re dealing with. Here are the most important things to know about buying leasehold.

What is the difference between leasehold and freehold?

The freeholder of a property owns the ground beneath the building, while a leaseholder only has an agreement to rent the land. As a freeholder – even if it’s just a ‘share of freehold’ rather than sole ownership – you have the right to live on that plot of land without paying ground rent. You also have control over the maintenance of the roof and external walls.

With a leasehold ownership, the ground below the property is still owned by a freeholder – it’s just not you. You’ll be subject to the terms of a lease, which may include ground rent charges, obtaining permission for major works and other restrictions.

What are the main concerns with a lease?

As outlined above, there are many potential pitfalls when buying a leasehold property, which is why it’s so important to check the terms before you commit to buying.

The main issue to be aware of is that, should the lease be allowed to reduce to zero, ownership of the property will revert back to the freeholder, leaving you nothing to show for it. Although you can apply for a lease extension, it will cost several thousand pounds – escalating sharply as the remaining term reduces. Use our lease extension calculator for an idea of costs.

Average annual ground rent around the UK is only £100-£300. However, there is no restriction to what the freeholder can charge and you may find that it is much, much higher for the property you are interested in. Plus, the lease may include stipulations that the ground rent will increase after a set number of years, so even if the cost looks reasonable now, by 2050 it could have multiplied to a sum that renders the property unsellable.

Why would anyone buy leasehold?

It’s not all bad news. Some lease terms are very lenient, ground rent can be non-existent and the duration of the lease can be anywhere up to 999 years. Even short leases can be extended by 90 years, so shouldn’t necessarily be a deal-breaker. The important thing is to know what you’re getting into before you exchange contracts to purchase the property.

If you have any questions about lease extensions or owning leasehold property, our team of expert surveyors will be happy to help. Email your query using our contact page or call us directly on 020 8133 9517 for assistance.