Leasehold/Freehold

SGE1

As I embark on the lengthy task of trying to do some research into buying a property (most likely a flat) as a FTB, I've been trying to work out the implications of leasehold and freehold properties for sale.

My understanding is that leasehold is basically purchasing the property, but not the land it's on, and as a result, the property reverts back to the freeholder after the lease expires. I hope I have got this wrong and that there's more subtlety to it, because the thought of pouring hundreds of thousands of pounds, time, and effort into buying a property which you effectively never really own, is making me nauseous.

Since nobody ever seems to blink when a leasehold flat comes on the market, I'm assuming that leasehold isn't that bad, and that there must be some redeeming features to it that have gone completely over my head? Or is it rather that there are so few freehold flats available that everyone just has to put up with it?

qwertyuiop12345

Your understanding is basically correct. However, Leaseholders do have rights (for example to extend the lease or purchase the freehold - under certain situations). Both the leaseholder and freeholder also have the rights and obligations as set out in the particular lease. This might include things like a rule against pets for example. When you purchase a leasehold property your solicitor will make a summary of the lease for you and outline and things likely to significantly affect you.

The value of a leasehold flat is lower than the value of the equivalent flat freehold, the extent of this depends on the length of the lease remaining. As the remaining lease length increases, the leasehold value approaches the freehold value. For example if you buy a flat with 900 years remaining on the lease and sell it in 30 years time with 870 years remaining there is no significant change in the circumstances of the flat so you would not lose money due to this. However if you bought a flat with 70 years remaining and sold it with 40 years remaining it would have significantly lost value. Hence the flat would be worth less at the start in the later situation. I hope this makes sense - I'm half asleep today!

Some people deliberately purchase flats with few remaining years in order to live in extremely expensive areas (eg. Mayfair).

SGE1

qwertyuiop12345 wrote: »

Your understanding is basically correct. However, Leaseholders do have rights (for example to extend the lease or purchase the freehold - under certain situations). Both the leaseholder and freeholder also have the rights and obligations as set out in the particular lease. This might include things like a rule against pets for example. When you purchase a leasehold property your solicitor will make a summary of the lease for you and outline and things likely to significantly affect you.

The value of a leasehold flat is lower than the value of the equivalent flat freehold, the extent of this depends on the length of the lease remaining. As the remaining lease length increases, the leasehold value approaches the freehold value. For example if you buy a flat with 900 years remaining on the lease and sell it in 30 years time with 870 years remaining there is no significant change in the circumstances of the flat so you would not lose money due to this. However if you bought a flat with 70 years remaining and sold it with 40 years remaining it would have significantly lost value. Hence the flat would be worth less at the start in the later situation. I hope this makes sense - I'm half asleep today!

Some people deliberately purchase flats with few remaining years in order to live in extremely expensive areas (eg. Mayfair).

Yes that does all make sense, thank you.

Most of the flats I've seen have leases with sub 100 years remaining, which is what scares me.

And presumably, you can only buy the freehold if the freeholder is willing to sell it.

Is there a consensus on the minimum number of years that should be left on the lease for the property to be a worthwhile investment? Clearly, as FTB, if I buy a leasehold flat, and sell it within 5-10 years, I don't want the value to have dropped as a result of the lease duration (or as a result of anything else, for that matter), so I guess there should be at least 100 years or so remaining on the lease when making a purchase, but ideally more?

fatpig_2

It's hard to get a mortgage if there's less than 60 years left on the lease.

Richard_Webster

You can with other flat owners buy the freehold of the whole building and that is often worth doing - but the buying the freehold of just your flat probably immediately decreases its value by about 30%!

Pure freehold flats are virtually unmortgageable (except with a few lenders in Scarborough for some reason.).

qwertyuiop12345

Richard_Webster wrote: »

You can with other flat owners buy the freehold of the whole building and that is often worth doing - but the buying the freehold of just your flat probably immediately decreases its value by about 30%!

I wasn't aware that it was even possible to divide up the freehold in this way. I have never heard of it being done before. I'm intrigued - can you provide a link to information about this process? It sounds like a legal nightmare!

Richard_Webster

It is possible and some idiots have actually done it - but why anyone would want to do it I can't imagine - the more likely thing is to reunite the freeholds in one shared ownership and grant leases of the flats.

qwertyuiop12345

SGE1 wrote: »

And presumably, you can only buy the freehold if the freeholder is willing to sell it.

No, a group of leaseholders can collectively enfranchise the lease (force the purchase of it) if they fulfill certain conditions.

You might like to have a look at the website of the Lease advisory service for more info.

http://www.lease-advice.org/main.htm

If you are considering purchasing a particular leasehold flat and you are worried that the lease is too short, it might be worth contacting the freeholder and asking if he would offer you an extension and at what price.

For example, I once purchased a flat with 78 years remaining with a written agreement to extend the lease for a certain price. In the end instead we actually purchased the freehold as a company comprised of the leaseholders and extended our own leases to 999 years as this was a much better deal.

neverdespairgirl

SGE1 wrote: »

I hope I have got this wrong and that there's more subtlety to it, because the thought of pouring hundreds of thousands of pounds, time, and effort into buying a property which you effectively never really own, is making me nauseous.

Freehold isn't really "owning" either - it's an estate in fee simple. But the land belongs to the Crown.

Richard_Webster

No, a group of leaseholders can collectively enfranchise the lease (force the purchase of it) if they fulfill certain conditions.

You might like to have a look at the website of the Lease advisory service for more info.

http://www.lease-advice.org/main.htm

If you are considering purchasing a particular leasehold flat and you are worried that the lease is too short, it might be worth contacting the freeholder and asking if he would offer you an extension and at what price.

For example, I once purchased a flat with 78 years remaining with a written agreement to extend the lease for a certain price. In the end instead we actually purchased the freehold as a company comprised of the leaseholders and extended our own leases to 999 years as this was a much better deal.

Agreed, but do it as a group for the whole building - don't ever try to buy the freehold of just one flat!

SGE1

Richard_Webster wrote: »

You can with other flat owners buy the freehold of the whole building and that is often worth doing - but the buying the freehold of just your flat probably immediately decreases its value by about 30%!

Pure freehold flats are virtually unmortgageable (except with a few lenders in Scarborough for some reason.).

Really - buying the freehold just for you flat would decrease the value of your property? Wouldn't that just mean you own your flat and the small piece of land it's on (though I take someone else's point that the Crown owns the land technically)?

Totally confused - bet it's simple and obvious, but would be great if someone could explain! In my mind, freehold = good, and lease (esp. short lease) = bad, but clearly this isn't what everyone else think! :huh: