Potential 1st Time Leasehold Buyer

HappyTimes

I'm going to be viewing a leasehold flat today. From the details I've seen so far (including the HIP) all looks good save that there is only 72 years remaining on the lease. I am new to buying leasehold but have done a bit of research and from what I gather this shouldn't cause a problem with the mortgage (although I will of course check with the mortgage co.). What I'm not entirely sure about though is what effect this lease issue has to the value of the flat and to my first offer.

For example, if I were to put an offer in this afternoon, should I automatically reduce my first offer by the cost of the leasehold extension? Or, do I make an offer ignoring the issue with the lease but stating that the purchase is conditional upon the vendor extending the lease?

There is no mention in the sales particulars that the flat is priced low due to the length of the lease and the agent has made no mention of it yet. So can I assume that they are expecting a very low offer in view of the need to extend?

Any help or views would be most appreciated!

kaych

I did a little search and found this BBC article (back in 2006), don't know if it is still applicable.

http://news.bbc.co.uk/1/hi/programmes/working_lunch/4677456.stm

One of the questions and answers was:

Vaughan & Valerie Bidewell's daughter is selling her leasehold flat. The 99 year lease still has 63 years to run. Her buyer has been told by his lender that the lease must be extended before they will grant a mortgage. Why is this a problem? Are some lenders more flexible about this than others? Different lenders have different rules on this, but in essence lenders are worried (as should a purchaser be) that if a lease is too short it may have an adverse impact on the sale price of the property in the future. As a general rule lenders want the minimum outstanding lease to be 25 to 35 years longer than the mortgage term you want, though some of the smaller lenders sometimes stipulate a full 50 years more than the mortgage term. It may be that the purchaser is trying to use this as a means of getting the asking price down, but at 63 years remaining this really shouldn't be an issue.

<sebb>

Many banks wont lend if the lease is shorter than 70 years. Some will actually ask for 80 years.

After you have owned the property for 2 years you will have the right to extend the lease yourself. But bear in mind, the shorter the lease, the more expensive it will be to extend it. There is lots of useful information here which you should read before buying a leasehold property.

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

Personally I'd prefer the lease to be extended, unless you get a suitable discount from the price of the property and are willing to extend it yourself later. It's difficult to know whether it's already priced for the short lease from the details you have given.

Richard_Webster

There is no mention in the sales particulars that the flat is priced low due to the length of the lease and the agent has made no mention of it yet.

Agents often don't consider lease length when valuing. Sellers often don't know that detail and although it will be in the HIP they don't look at it!

Of course, if you ask for a reduction because of the short lease they will say that flat was priced taking into account the length of the lease - but they would say that wouldn't they?

Certainly worth asking the seller to find out the term son which the freeholder would be prepared to extend the lease. If the seller says it won't cost very much then you say that there's no harm in getting a definite figure then is there?

If the seller thinks from previous dealings with the freeholder that he will ask a lot, then seller will be disinclined to contact the freeholder about it for fear that he is told a high figure. Having got such a figure it is difficult not to reveal it to the buyer. However as a buyer if the seller won't do this you naturally have to ask what is being hidden.

Ideally you should agree an all in price that includes a lease extension.

HappyTimes

Thank you for your replies. It transpires that the flat is conveyed with a share of the freehold so I have no concern over the lease extension issue. I've put an offer in for 8% less than the asking price as its a beautiful flat and perfect for me ....I'm the first person to look at it and think it will be snapped up quickly so fingers crossed they will accept my offer or thereabouts.

Thanks again for your advice.

Richard_Webster

Thank you for your replies. It transpires that the flat is conveyed with a share of the freehold so I have no concern over the lease extension issue.

The lease will still need to be extended by you and the other co-freeholders. Mostly they will do this because they realise you are all in the same position - but don't simply assume this without checking, as occasionally they don't because:

1. All the other leases have already been extended and the others gang up on you and make you pay what you would pay to an outside freeholder; or
2. They don't understand the shared freehold set up and say things like "we don't have leases we are freeholders....; or
3. One of them has a dispute with the others about something else and uses refusal to sign to extend leases as a negotiating tool (less likely as an issue if a company owns the freehold)

Is this a conversion with up to 4 flats or a bigger block with more flats where the freehold is held by a company?

In any case it is wise to talk to the other co-freeholders to establish their attitude to lease extensions before you buy. Do not assume things.

If there is a company owning the freehold then conatct should be made with those running the company to fidn out whether they will do a lease extension at no more cost than for the legal work involved.