FTB - Limited lease on flat

retepetsir

Morning everyone. I could do with a bit of advice!

My partner and I have been renting a flat for the past 2 years (after moving out of our parents homes), and slowly saving for a deposit (which is difficult when rent + bills are ~£1200 a month).

We've now saved £20k.

However, a ground floor flat within the same block as ours went up for sale a few months ago at £185k (far too expensive). It's now been brought down to £155k. They're large flats, great floor space and excellent location.

We were originally wanting to move in to a house for our first mortgaged property, but to stay around here that would cost £200k for a 2-bedroom terrace, and the other half doesn't want to move elsewhere due to the location of her work.

Now.....£155k is £45k cheaper than the equivalent house, and with more space plus a garage too. I've had a look at the cost of a mortgage and HSBC seem to offer the best rate on a 90% mortgage, using £16k for the deposit and the rest for fees, etc. It's a 4.4% tracker mortgage with no penalties for early repayments, and at current rates works out as £750 a month, equivalent to what we currently pay in rent. We'd have no moving costs as we'd literally walk everything down to stairs.

I've not found out all the details yet but have heard that the lease may not be very long on the flat. I guess this would hamper the resale of the property in the future? We'd be looking to move from the flat to a house in a few years time.

The price has dropped very quickly as we think the older lady currently in the flat is looking to move in to a home. We'd be able to move immediately and have no chain/ties (its only downstairs as well), plus our landlord is a family friend so we only need to give 2 weeks notice.

£155k is in line with prices for the same flats two years ago which seems surprising to me.

The length of the lease is not given anywhere in the advert and the estate agents have been closed due to the current snow.

It's really the unknown for us, so any advice is appreciated! We don't want to get stuck in an unsaleable flat in the future. However, why pay £18k in rent over the next 2 years when we could be £18k towards our mortgage instead......?

Also, what is a reasonable offer if its already gone from £185k to '£155-165k', would £140k be too cheeky?

Many thanks :A

sooz

retepetsir wrote: »

I've not found out all the details yet but have heard that the lease may not be very long on the flat. I guess this would hamper the resale of the property in the future? We'd be looking to move from the flat to a house in a few years time.

Find out the length of the lease.
Without this, you have no idea what it is worth. If it's just dropped £30k it may be that this is how much it would cost to extend the lease now. As the lease gets shorter, this figure rises.

Depending on how short it is, you, or any other buyer, may not be able to get a mortgage on the flat.

So find out the facts first.

getmore4less

plus our landlord is a family friend so we only need to give 2 weeks notice


ask them about the leases and the freehold.

retepetsir

Thanks for the advice, I'll be giving the friend/landlord a ring later. I don't want him snapping it up before us though, builder with too many properties already ha!

I'm popping to the agents in a little while so I'll ask them about the lease.

hazyjo

I think too, if the lease is extended, the ground rent might go up significantly. This is what my hubby was told when he looked into extending the lease on his old flat. Bear all that in mind. There are many more costs when owning a property rather than just renting it. Service charge too, don't forget...

Jx

retepetsir

Ground rent is currently £23 per annum, service charge is £600 per 6 months, so £100 per month.

I've found out the details via the estate agent, it has a 99 year lease from when it was built in 1969, leaving only 58 years left, making it impossible to get a mortgage.

The cost of obtaining a lease extension on the property in 2005 when the market was at a peak was £13k + legal fees, so around £15k.

We know someone else who purchased a flat in the same block and had a similar issue (6 years ago), they ended up negotiating with the building landlord and got the lease fee down to £10k which they split 50:50, so they paid £5k.

I'm going to enquire about what he'd want to extend the lease to 125 years in terms of cost figures. I would think we have a bit more of a reason to negotiate this down due to the fact he and the flat owner want it so (and keep dropping the price).

Not sure what happens now, but I guess I need to get the estate agent to contact the building owner to ask about lease extensions, then we go from there!

sooz

retepetsir wrote: »

I've found out the details via the estate agent, it has a 99 year lease from when it was built in 1969, leaving only 58 years left, making it impossible to get a mortgage.

The cost of obtaining a lease extension on the property in 2005 when the market was at a peak was £13k + legal fees, so around £15k.

It doesn't quite work like that. Assuming all the leases were issued at the same time, that lease was extended with 63 years remaining, so the marriage value was less.

There is a very very basic lease extension calculator on the lease website www.lease-advice.org

retepetsir

sooz wrote: »

It doesn't quite work like that. Assuming all the leases were issued at the same time, that lease was extended with 63 years remaining, so the marriage value was less.

There is a very very basic lease extension calculator on the lease website www.lease-advice.org

Thanks, I'm new to all the 'lease' business so need to do my research. Looks like a good £13-16k excluding legal payments though, which makes the property too expensive

LittleMissAspie

retepetsir wrote: »

However, why pay £18k in rent over the next 2 years when we could be £18k towards our mortgage instead......?

So your rent is £750 a month. The interest on 139k at 4.4% plus the £100 service charge is £609 per month. That's £3,400 towards your mortgage, not 18k. Add in fees and maintenance and you are no better off financially, even if you didn't have to extend the lease.

I would save more. I know it's a slog, we did it ourselves. We saved £40k over 4 years while renting privately. When we finally bought I was so glad that we didn't stretch ourselves because our savings disappearing for the deposit was quite scary.

House prices are going nowhere in the next two years, so don't worry about "missing the boat".

retepetsir

LittleMissAspie wrote: »

So your rent is £750 a month. The interest on 139k at 4.4% plus the £100 service charge is £609 per month. That's £3,400 towards your mortgage, not 18k. Add in fees and maintenance and you are no better off financially, even if you didn't have to extend the lease.

I would save more. I know it's a slog, we did it ourselves. We saved £40k over 4 years while renting privately. When we finally bought I was so glad that we didn't stretch ourselves because our savings disappearing for the deposit was quite scary.

House prices are going nowhere in the next two years, so don't worry about "missing the boat".

Yes I had considered the interest too, but putting it in a more basic form. With the lease extended the value of the flat is likely to increase (no other flat in this area, fairly expensive area in West Sussex, SE England is this kind of price) we'd hopefully not lose any money on the flat (although there's always the risk).

We wouldn't be stretching ourselves with this purchase which is why we are so interested in the flat. The seller is desperate for a sale as it was his mother who passed away so he's after the money locked up in the flat, its not sold for nearly 4 months now and the flat is larger and better equipped compared to other flats for £175-£185k in the same area. The old lady who lived their kept it in fantastic condition with new heating system, bathroom etc so we wouldn't have to do anything to it if we didn't want to.

An equivalent house would be £200k+, we'd still be able to save the same amount of money (give or take £100/month) whilst paying the mortgage and all costs towards the flat.

Do you therefore not think its worth considering as a stepping stone to a house? It's £40k cheaper than places I've been looking at previously (still with 10% deposit).

One more question, when is ever the right time to buy? I always thought it was difficult to know!

Hmmmmm, so many thoughts going round in my head now.

We viewed the flat today and it was great, just a mirror image of ours in terms of layout.

The seller has also now confirmed that he would be willing to fund the lease extension himself if it means the flat is sold, roughly £15k, we'd therefore go in with a reasonable (not low) offer on the condition that the lease is extended.

Or again is that completely the wrong way to think about it?

Thanks for the advice so far, confusing business :eek:

sooz

retepetsir wrote: »

The seller has also now confirmed that he would be willing to fund the lease extension himself if it means the flat is sold, roughly £15k, we'd therefore go in with a reasonable (not low) offer on the condition that the lease is extended.

Or again is that completely the wrong way to think about it?

Thanks for the advice so far, confusing business :eek:

However, you are unlikely to get the mortgage until the lease is extended.

Before you make an offer, you should try speaking to a mortgage advisor or IFA about getting a mortgage with such a short lease, &/or such a short lease in the process of being extended (it's not instant!)