Leasehold years

justracer

What term in years does the value of a leasehold start to reduce?

Doozergirl

In theory it's 80 years at which point something called 'marriage value' kicks in which makes a lease extension more expensive. The value of the existing lease would decrease roughly in line with the cost of the lease extension.

In a fast paced market, it would often remain unaffected well down into the 70s.

Richard_Webster

Most people however feel uncomfortable buying a leasehold property with anything below 50 years, and I'd suggest, e.g for two identical properties, one with a leasehold of 99years & one with a leasehold of 98 the 99year one would fetch a little bit more...

Anyone buying buying a sub-50 year lease other than a cash buyer at a very substantial discount should not just be uncomfortable - they would be mad.

However, there is a lot of difference between theory and practice. Because people don't understand the significance of lease lengths there's no real buyer pressure to pay less for say a 98 year lease than a 99 year one.

I know of a concrete example where there were a group of 1970s/80s maisonettes built by the same builder at round about the same time. Client approaches me to deal with a purchase of one of these that had about 75 years left. I warned him that in due course he would have to pay for a lease extension so he should bear that in his financial calculations. Another estate agent was offering a maisonette up the road which was same design etc but for some reason had 970 years left. Price was exactly the same! He bought that one!

Estate agents look at the quality of the accommodation and area etc and don't take any notice of the length of the lease unless they consider it is unreasonably short. Lenders vary between 55-70 years in what they will accept, so in the 70s of years the issue is about whether a buyer will be savvy about the possible cost of an extension looming or his solcitor will warn him properly.

The difficulty some buyers will have is that although they can put forward the theoretical position that a shorter lease should be worth less and say they will pull out unless the seller reduces the price or pays for an extension, if there are people out there who don't understand the point, it is quite likely the next buyer won't see the issue and the sale will go through.

If the lease is short enough for it actually to be difficult to get a mortgage then the seller may be faced with a series of abortive sales. Those agents who are not wet behind the ears will realise this point and advise a seller with say a lease in the 60s of years either to reduce his price or to seek a lease extension as part of the deal. Now maybe they are doing that with slightly longer leases because buyers can afford to be choosier.

Now where I am there are less people buying flats as opposed to houses - you can buy a 3 bed semi for what a lot of people in London pay for a manky 1 bed conversion, so the points about 80 years and marriage value and 82 years to make sure you have the 2 year qualification before marriage value kicks in are not as much known as in London so value is not affected much, if at all.

I suspect Doozer is right in that while the market was roaring ahead people didn't have much choice in London but to accept leases with mid 70s of years even thought they weren't as good in the long term as those with say 10 more years on them.