Leasehold Question

kindofagilr

Hi

My mother has her house on the market for £124, 950 it is in the Cramlington area of Northumberland and is a three bedroom house, usually these houses are great buys for first time buyers.

Since mam put her house up for sale a few more houses in the street went up for sale, one for £119.950 and another one for £117,950

Just before Mam's went up for sale someone down the street had theirs up for £124.950 and it sold

Sorry I cant link the website wont let me, but if anyone wants to look its on http://www.renown-estate-agents.co.uk/ if you search for house between £110k and £125k then all houses in question come up, mam's is the one with the red tiles for £124,950

My mam has had a few viewings about 8 or so since it went up for sale, but the young girl and her mother who came last (on monday) stated that some mortgage companies will not lend to first time buyers if the lease is less than 70 years, mam's currently has 64 years on it.

Mam has wrote to the company who owns the land and paid them £50 to find out how much it would cost to buy the lease, they gaver her an estimate on the phone of £3500 to buy the lease.

I just wondered if anyone knew anything more about this, obviously I dont want my mam buying something she doesnt have to buy and it eating into her equity

I hadnt heard of morgage compaines not lending to first time buyers because of the lease life but would like to know if other people have heard anything?

Vincenzo

It is generally accepted that anything less than 70 years is a problem as far as mortgage lending goes. A leasehold property is a depreciating asset and the lender needs to protect themselves against a fall in value as a result. When you say buy the lease do you mean purchase the freehold of the property or extend the term of the lease?

Your mother should discuss with her agent marketing the property with the option of a lease extension to be undertaken simultaneously with the purchase. This can be a great selling point for buyers and a useful tool in negotiating price. For example someone may offer £115,000 and you say £120,000 but you will pay for the lease extension which only costs £3,500.

To be honest I am surprised (and you should be concerned!) that the agent has not already advised re the length of lease and how this will affect marketing.

Icey77

A lot of mortgage companies are wary of offering mortgages on properties with low lease lives left. This filters through to buyers that don't want to spend hundreds of thousands of pounds on a property which they will have to hand back to lease holder when the lease expires - they don't get much for their money.

Seing as there is only 64 years left £3500 is a very, very good price!

There are other costs to consider - your mum will be responsible for both sides legal costs, admin fees, valuation fees etc etc. Expensive but worth it as she will find her home is essentially unsellable with such a short lease left.

I recommend you get started on renewing or buying the lease pronto - I had 76 years left on my lease and it took over 6 months to renew it from start to finish. If I was trying to sell my flat I am sure no-one would have wanted to know until the lease was sorted!

Good luck! :beer:

kindofagilr

Sorry, yes she is now looking at buying the land so that the house will become freehold.

She too has been having concerns about the estate agent and she was looking at her paperwork that me, her and my brother are going to go through this weekend as she said when she signed up to this estate agent in particular they said if she signs up to another estate agent as well (or changes to another one) within a 6 month period she would owe Renown as they say the buyer could have seen it on their site

As she didnt realise that Renown appears to be the only estate agent up here who arent on right move which I and my brother think is a disadvantage.

I like your idea of the option of a lease extension to be undertaken simultaneoulsy with the purchase.

ETA thanks Icey

Yes she has sent the cheque away to the owner of the land (she had to pay £50 for the quote) so she is waiting to hear back from them.

What do you mean by there are other costs?

So do you think the lease is causing such a problem in selling of the house, I mean obviously I am biased but I think its a lovely house.

Icey77

I'm sure it is a lovely house but who in their right mind is going to shell out £xxx,xxx for a property which in 64 years they or the person they sell it to have to GIVE to the freeholder because the lease has run out?!!???

As I stated above, if you decide to renew the lease (can't comment on buying the freehold as I've not done this) you will be responsible for your legal costs, the freeholders legal costs, the valuation fees from the freeholder, your valuation fees (definitely recommend to make sure the quote is reasonable), admin fees etc etc.

It's not a cheap thing to do and it won't be done in a week either. But it is worth it.

I'm afraid, harsh as it may seem, no one is going to even consider buying your house whilst the lease is at 64 years. You need to get the lease renewed or buy the freehold.

Vincenzo

If the freeholder offers to sell your mum the freehold for £3,500, there will be no need to incur any costs other than your and their legal costs which should be minimal as this is a very simple transaction.

You may wish to have a valuation done however as Icey states if you do so and wish to negotiate the process can become lengthy and the costs can escalate.

At this level of cost, is it really worth incuring £1000 worth of fees to save £500 on the purchase price? With a little research online you will be able to get a good idea of whether this is a reasonable price.

Icey77

I agree whole heartedly, my comments on costs were in relation to renewing a lease as I have done this. I have not bought a freehold so I can't make any comment on this scenario.

If you do have any questions relating the renewing a lease please don't hesitate to ask. :beer:

Richard_Webster

How long has she owned it? If she bought it recently didn't her solicitor warn her that the lease length could be a problem in selling in the future?

kindofagilr

Icey77 wrote: »

I'm sure it is a lovely house but who in their right mind is going to shell out £xxx,xxx for a property which in 64 years they or the person they sell it to have to GIVE to the freeholder because the lease has run out?!!???

As I stated above, if you decide to renew the lease (can't comment on buying the freehold as I've not done this) you will be responsible for your legal costs, the freeholders legal costs, the valuation fees from the freeholder, your valuation fees (definitely recommend to make sure the quote is reasonable), admin fees etc etc.

It's not a cheap thing to do and it won't be done in a week either. But it is worth it.

I'm afraid, harsh as it may seem, no one is going to even consider buying your house whilst the lease is at 64 years. You need to get the lease renewed or buy the freehold.

Thanks again, I just wish the estate agents had mentioned this to her when she first put it up for sale, I mean I know it hasnt been up for ages but to find this out 6 months down the line is a bit of a pain lol

The one thing I don't understand is why mortgage companies won't lend? if a lease has 64 years left on it and you want a mortgage for 30 years, then you are still in lease when mortgage is over.

It would be when you then wanted to sell that I can see there being a problem, anyway thats just a wondering of mine, like I said Mam is getting a quote to buy the lease/extend the lease

Thanks Vincenzo, I think mam is more than happy with the quote given over the phone, she is just waiting for it in writing now before paying.

Richard - she has owned the house since 1993 so 17 years

HappyMJ

kindofagilr wrote: »

The one thing I don't understand is why mortgage companies won't lend? if a lease has 64 years left on it and you want a mortgage for 30 years, then you are still in lease when mortgage is over.

They won't lend because you may not make the payment when the mortgage term in finished. If I were to borrow money on an interest only basis then I would be expected to save up the cash in ISA's and other investment products similar to the endowment mortgages of the past. If I chose not to save and just pay the interest I could hand back an almost worthless property back to the mortgage lender in 30 years. Or I could stay in it then they would then have an issue trying to get me out before I died. As long as the interest keeps getting paid then they almost certainly will not get a possesion order so I could live in it until I died or until the lease ran out.