What % does freehold + 999-year lease add to value?

CJSnet

Hi, I currently own a leasehold property with 102-year lease.

We are about to buy the freehold of the current lessor, giving me a share of the freehold of my apartment, and a new 999-year lease.

If the current value of the property is £225,000 or £250,000 then what are the new values considering the switch from leasehold to share of freehold, and from 102-year lease to 999-year lease?

I won't tell you what my local agents have said yet, but their guesstimates differ by £16,000!

Thanks.

cattie

As a buyer a 102 yr lease would be more than ample for me & I wouldn't consider the property was worth a great deal more with a longer lease & share of freehold.

lush_walrus

I agree with the above, the extension of the lease would not actually add value, this only adds value if the lease is considered to be short, such as less that 50 years. Buyers are just as happy to buy into property with 99 year lease as they are 999 year lease, neither are any more appealing.

The fact that you now have a share of the freehold will however add a little, but nothing significant, I assume that this will just illiminate a peppercorn ground rent (if its a typical victorian house converted).

EAs value property on what it is worth to a buyer, put yourself in the position of a buyer, how much would a longer lease be worth to you? Perhaps just about the cost of setting up a freehold and extending the lease?

CJSnet

Hmm, I have been told it will add the following by agents:

Foxtons: £20,000
Victor Lown: £7,500
Featherstone Leigh: £4,000

Where are they seeing this value from do you think?

Joe_Bloggs

@CJSnet
It is a very tricky area and there has been a fair bit if recent legislation in this matter. I'm trying to get to grips with the topic. This site is a good start.
Some would say this feature adds nothing to the value of the property but makes it more attractive to buyers who understand the difference between freehold and leasehold (not that many first time buyers, I guess).

It would be nice if vendors would research the costs of extending the lease and inform estate agents of lease details and extension costs. Somewhere I read that you had to be resident two years before you can renegotiate a lease so it is the vendors duty to leave the lease the way the buyers want it, in my idealistic view.
Is there a property management committee that you will have a say in ?
J_B.

lush_walrus

I think £4,000 is about right, maybe £7 at a push but £20,000 I think is a bit hopeful from Foxtons!

Really you will be best to keep the property under the £250 mark anyway, as anything about £260-£290 is still sticking on the market as most buyers are trying to either stick below the threshold or else jump high enough up the ladder to warrent paying the extra.

CJSnet

Joe_Bloggs wrote:

@CJSnet
It is a very tricky area and there has been a fair bit if recent legislation in this matter. I'm trying to get to grips with the topic. This site is a good start.
Some would say this feature adds nothing to the value of the property but makes it more attractive to buyers who understand the difference between freehold and leasehold (not that many first time buyers, I guess).

It would be nice if vendors would research the costs of extending the lease and inform estate agents of lease details and extension costs. Somewhere I read that you had to be resident two years before you can renegotiate a lease so it is the vendors duty to leave the lease the way the buyers want it, in my idealistic view.
Is there a property management committee that you will have a say in ?
J_B.

Thanks, and yes I am a Director of the Freehold Company, and we are instructing a Certified Managing Agent to do all the hard work!

Our main gains will be from redeveloping the estate and modernising it, but it would be nice to know a firm figure of what the share of freehold + 999-year lease brings, that was all.

Thanks.

CJSnet

lush_walrus wrote:

I think £4,000 is about right, maybe £7 at a push but £20,000 I think is a bit hopeful from Foxtons!

Really you will be best to keep the property under the £250 mark anyway, as anything about £260-£290 is still sticking on the market as most buyers are trying to either stick below the threshold or else jump high enough up the ladder to warrent paying the extra.

I thought that the stamp duty thing had been reworked so that £250k was less of a deterrent, no?

Thanks.

Ian_W

No, S/D is still a mess, over £250k = 3%, and it's not incremental so it applies at that rate to the full purchase price. No logic, no rhyme or reason, just politcal expediency!!

I personally don't think buying a share of the freehold & extending the l/hold from 102 to 999yrs adds a great deal, if any, intrisic sale value, though I do agree a more savvy buyer might, all other things being equal, find it more attractive.

I've lived in a few l/h props including the present one [balance of 999yrs] and asked a surveyor doing a valuation for a remortgage the effect of our then, fairly new, 99yr leasehold on the value. His opinion, right or wrong, was f/h, 999 or 99yr leasehold didn't affect the value until the lease got to 70yrs or less. Then short l/h had a detrimental affect on value, rather than f/h or long l/h having any great beneficial effect.

Whilst I'm not saying he's right it does make sense when you consider that some/many[?] new build houses as well as flats are on a 125yr [or similar] l/h yet sell for similar prices to f/h new builds.

I suppose another test is if you were buying your property would you pay £20k more if it were freehold than an identical prop with 102yr L/h?

EDIT: Best thing about buying f/h is that you, and other f/holders, can keep communal areas as you would like them, not how a 3rd party considers acceptable. If your co-freeholders are prepared to invest rather than pay the bare minimum - that could well add real value to your sale price.