Freehold, Leasehold - how much does this affect the price of your home? Need advice!

Kittie_2

I live in a flat in London and do not plan to stay here longer than about 2 years. I currently have 74 years on the lease and have contacted the Leasehold Advisory Service for some info about extending the lease. They seem very pro long leases/freeholds, even though, in my experience, in our area places sell for the same price regardless of length of lease or freehold.

We've also had a letter from our landlord offering to sell us the freehold for £8k. My questions if anyone can help me are

1. If our landlord decides to sell the freehold to someone else, will they buy it? Would anybody want to buy the freehold on a single London flat, without owning the property?
2. If I put the flat on the market when there are still 71 years on the lease, will it make that much difference to the sale price of the flat? Or is it just the saleability i.e. one less thing for buyers to think about? In my experience, first-time buyers are less bothered about leases etc but it's a gamble
3. I *think* that the cost of extending the lease is about the same price as the freehold, as I've been working out an estimate of the marriage value, what are your experiences here? Were you able to bargain down on the extension price?
4. Do we have to pay the landlord's legal fees as well as our own or any other compensations, in order to buy the freehold? Any idea what kind of cost we'd be looking at?

I was all for buying the freehold, but now I'm beginning to wonder whether we shouldn't keep the money, take the gamble on selling the flat as is, and if potential buyers aren't happy we can drop the price by the amount we would have paid to buy the freehold. It just feels like buying the freehold could be just losing that money. If this were a house and if it wasn't in London (i.e. people buying to live here for long periods of time) then I would think different.

Any advice would be gratefully received

Thanks in advance!

sooz

Kittie wrote: »

I live in a flat in London and do not plan to stay here longer than about 2 years. I currently have 74 years on the lease and have contacted the Leasehold Advisory Service for some info about extending the lease. They seem very pro long leases/freeholds, even though, in my experience, in our area places sell for the same price regardless of length of lease or freehold.

We've also had a letter from our landlord offering to sell us the freehold for £8k. Do it now, before he changes his mind, or puts the price up !My questions if anyone can help me are

1. If our landlord decides to sell the freehold to someone else, will they buy it? Would anybody want to buy the freehold on a single London flat, without owning the property? Yes, people do buy just freeholds. Is there must be more than one flat in the building. Is there lots of land, or room to extend/add another floor or flat? Some people gamble on the naivety of others, as if you didn't extend the lease, & the next purchasers didn't either, the marriage value increases, as does the potential return to the freeholder. If it's sold on the open market, you would have right of first refusal, and the offer to buy it at the same price as the potential new purchaser.
2. If I put the flat on the market when there are still 71 years on the lease, will it make that much difference to the sale price of the flat? Or is it just the saleability i.e. one less thing for buyers to think about? In my experience, first-time buyers are less bothered about leases etc but it's a gamble Mortgage companies dislike anything under 80 years. This is when marriage value kicks in, & the price of extending the lease increases. You will rule out a lot of buyers, especially first time ones, & those needing mortgages.
3. I *think* that the cost of extending the lease is about the same price as the freehold, as I've been working out an estimate of the marriage value, what are your experiences here? Were you able to bargain down on the extension price? You can try. Depends on how much your ground rent is & how much your flat is currently worth. Bear in mind if you do try to haggle, & the freeholder wants to go down the offical rather than informal route, you'd have to pay for both his & your surveyor.
4. Do we have to pay the landlord's legal fees as well as our own or any other compensations, in order to buy the freehold? Any idea what kind of cost we'd be looking at? Yes, you'd normally pay his legal fees.

I was all for buying the freehold, but now I'm beginning to wonder whether we shouldn't keep the money, take the gamble on selling the flat as is, and if potential buyers aren't happy we can drop the price by the amount we would have paid to buy the freehold. It just feels like buying the freehold could be just losing that money. If this were a house and if it wasn't in London (i.e. people buying to live here for long periods of time) then I would think different.

Any advice would be gratefully received

Thanks in advance!

Have a look on the freehold/leashold board of Landlordzone. See just how terrible some freeholders are. Then reconsider. In your position, if I had the money available, or could borrow it, I'd jump at the chance to own the freehold.

Richard_Webster

If our landlord decides to sell the freehold to someone else, will they buy it? Would anybody want to buy the freehold on a single London flat, without owning the property?

You should NEVER buy the freehold of just your flat. It is a good way of spending money to make your flat unmortgageable!

What is probably on offer is a collective purchase together with other flat owners. You would need to get with the others to do this and own the freehold of the WHOLE BUILDING jointly or indirectly througha c ompany owned by the flat owners.

Kittie_2

Thanks all. I think that what is probably being offered is a share of the freehold, so the outcome of us paying the money would be that we'd become part of a company and the landlord will retain ownership/freeholdership of the other flat that isn't ours.

I guess I'm wondering how to work out whether we might be better off trying to extend the lease rather than owning a share of the freehold via the share company (i.e. the company set up between us and the upstairs landlord). I've seen the lease extension calculation example on the Lease Advisory service website, but it's very difficult to work out. Also wondering how much room for negotiation there is with regard to a lease extension

Richard_Webster

You may get more help on the financial side of things by going to http://www.landlordzone.co.uk/forums/
and posting on the Long Leasehold Questions board.

Doozergirl

Kittie wrote: »

Thanks all. I think that what is probably being offered is a share of the freehold, so the outcome of us paying the money would be that we'd become part of a company and the landlord will retain ownership/freeholdership of the other flat that isn't ours.

I guess I'm wondering how to work out whether we might be better off trying to extend the lease rather than owning a share of the freehold via the share company (i.e. the company set up between us and the upstairs landlord). I've seen the lease extension calculation example on the Lease Advisory service website, but it's very difficult to work out. Also wondering how much room for negotiation there is with regard to a lease extension

It's a simple gamble. If you are considering whether to buy your share of the freehold or extend the lease then I would probably buy the share of freehold at that length of lease. But then, if you are selling on, why bother investing the extra if it costs extra?

If you decide to wait then it's a gamble. You may find someone who's solicitor doesn't advise them about the length of the lease but if they do, then you will find that FTBs are very bothered about things like this.

It's not true that mortgage companies take umbridge at 80 years. Some mortgage companies will not lend at less than 70 years but more do than don't, AFAIK. As the length decreases from there, as does the number of lenders available but there are (or certainly were) lenders out there that will lend at the mortgage term + 25 years. That doesn't mean that the value isn't affected though!

I would say at 71 years that the flat is probably devalued by the cost of the lease extension - it just depends on whether you find a naive buyer. Over 70 years, you are more likely to find one.

The cost of the lease extension/SOF might fall with property values, it will rise with the shortening of the lease. If the freehold is sold on, then the new freeholder may seek to profit on top of what they paid for the freehold in your lease extension. It's incredibly expensive to contest an unfair valuation which is why many people simply have to lump an unfair price for a lease extension. I would be wary of investors buying just freeholds - they are almost certainly likely to be seeking profit and the length of your lease starts to make your freehold an attractive prospect.

Complicated isn't it!

Richard_Webster

A lot of common sense from Doozer in the last post.

See my post on this thread about what solicitors do:
http://forums.moneysavingexpert.com/showthread.html?t=1130585

Advising clearly about lease length and likely future problems is something that not all solicitors seem to do. They either say nothing or make a very obscure comment in a pre contract report that doesn't unpack the potential problem so the average buyer doesn't understand what is being said and its potential financial implications in the future.

When selling you can never be sure what the buyer's solicitor will say about a lease of 70-82 years length. Below 70 years they would be totally crazy not to be giving their client very heavy warnings about being taken to the cleaners by the landlord further down the track.

In my area in the mid 90s you could buy a 2 bed terrace for the price a studio flat went for in mid 1988. Why buy a flat at all in that kind of market? Why buy a flat with any problem when there are loads with no problem? This sort of logic must be kept in mind in the market at the moment.