So, you have found the property of your dreams but it has a short lease. Should you walk away or go for it?
Many people think that buying a home with a short lease term is a total no no. But there are several options worth considering as you weigh up the pros and cons and a number of potential ways around the problem.
What’s the difference between leasehold and freehold?
When you buy a freehold property you own the property as well as the land it is built on. With a leasehold property, you own only the property and only for as long as the lease runs. Some leases are around 900-plus years long but many are between 99 and 125 years.
How short is too short?
The shorter the lease, the more difficult it is to get a mortgage as most providers won’t lend if the lease is less than 70 years.
For that reason, if a lease has less than 85 years left to run, alarm bells should start ringing. This is because when the lease hits 80, the ‘marriage value’ of the property – 50 per cent of the extra value added to the property as a result of extending the lease – comes into play.
Even without having to pay the marriage value, the shorter the lease, the higher the cost of extending it will normally be – anything from a few thousand to more than £20,000.
But I still really want the property…
There’s no reason to be unduly put off. If you are prepared to take on the short lease (or if the seller is willing to deal with the lease extension process), there are usually ways and means to get the lease extended:
If you require a mortgage, the only option available to you is likely to be for the lease to be extended by the seller (if the length of the term remaining on the lease does not comply with the minimum requirements of your lender).
Where do I begin?
It’s vital to make sure you know exactly how long the lease is and what the cost of extending it will be as well as the amount of hassle it may entail, before you enter into any purchase.
If you proceed under option 3 above, you will also be liable for the freeholders reasonable costs, both legal and valuation.
It’s also worth bearing in mind that conveyancing costs for a leasehold property are often more than for freehold as there is usually more legal work involved.
It’s important to take professional legal advice to establish the best way forward, to guide you through the leasehold conveyancing process and to help you with any negotiations needed as extending a lease can be complicated.
For more information, or to discuss buying and/or selling property, please contact Wards Solicitors’ specialist Conveyancing Team.