Buying Leasehold properties in the UK

The Scourge of the lease – budding landlords beware

Expatriates thinking of taking advantage of current weakness in property values in the UK to start or build on a UK buy to let portfolio are urged to pay specific attention to the details of any lease by specialist expat mortgage brokers Offshoreonline.org today. Offshoreonline.org believes that many overseas buyers will simply not be aware of the changes in underwriting terms which international mortgage lenders have quietly brought in.

Leasehold properties have ha very bad press in the past and the UK government has moved to introduce several changes to the law in 2002 which have certainly improved the lot of the leaseholder, but it remains the case that some leases can hold unwanted surprises for homeowners and lenders may not be keen to agree international mortgages on some properties. New buyers scouring the web for bargains may notice virtually identical homes being offered for sale at very different prices. The reason for this is usually very simple – the lease. Offshoreonline.org’s managing director Tim Harvey comments, “vendors now know that if the remaining term on their lease is under around 77 years, some lenders will refuse to advance funds, whilst other may strongly recommend the buyer extends the lease as part of the purchase. Before the credit crunch, mortgage providers were far more relaxed on this point and would normally have lent on properties with shorter leases.”

Renewing or extending the lease can be the next shock for both potential buyers and existing homeowners.  If you own a leasehold flat, you actually only own the property for a fixed period of time, you do not own it outright, as would be the case with a freehold. As the lease gets shorter, it usually becomes more expensive to extend the lease and it can make your property harder to sell. What many fail to appreciate is that the rate at which the renewal cost rises will increase dramatically as the lease falls below 70 years remaining.

Erica Evans of UK property search consultants expatfindaproperty.com comments, “You can apply to extend your lease if you have held it for at least two years and if the lease originally was for a period of more than 21 years. You can ask the landlord to extend the lease and negotiate terms like the length of the new lease and ground rent. This can however be an expensive process – it can easily cost £12,000 to extend a 75 year lease on a £285,000 flat, for example, plus legal costs.”

The effect of lease renewal can have a drastic impact on the value of a home, which is why some sellers will negotiate considerably on the sale price, if there is a short lease remaining. Normally, the leaseholder can agree a price to extend the lease, having taken advice and secured estimates from professional values, but in the event that agreement cannot be reached with the landlord, the last resort would be an appeal to the Leasehold Valuation Tribunal, an independent legal body that can settle certain types of leasehold dispute without the need to go to court. The leaseholder may also have to pay the landlord’s legal costs for dealing with the process, even if it falls through, so the process can be complex and it is easy to understand why many would want to avoid it.

Tim Harvey ends, “It is very much a case of “buyer beware”. We urge all buyers to look at the lease remaining and to get accurate estimates as to the cost of renewing it. On the plus side, a flat with a short lease can be hard to sell, so for the expatriate buyer, this could be bargain, providing they have done their sums in advance.”