What would you do....

ryanryan

Hi, bit of a story but here goes...!

Im 31 and have a 30 years left (was originally 35 yrs) on my mortgage for a one bed flat. I bought the flat for £91,500 and it is currently worth £100,000 ish.

I am now on a 4% tracker paying £427 per month and have made 5 over payments of £150, this has been the last 5 months and will continue!... WISH I STARTED IT SOONER!

I have just about enough in the bank for a healthy deposit for my next place as I do not want to live in a flat forever, however, I do not have a pension and would like to keep my flat on to either rent out or sell further down the line (even when Im 60-65). I am aware of capital gains tax etc...!

The only slight issue is that my leasehold has 72 years to run and to renew it will cost around £4,000 for a 95 yr extension (which is pretty good). If I let it drop below 70 years then charges will go up, then shoot up if below 60, 50 etc... The £4,000 will come out of my savings thus effecting my deposit for future place.

I think I am doing the right thing, as, currently my mortgage will be settled in 18 years saving me £27k in interest if I continue to over pay £150, I am planning to increase OP to £200-250 over the next year or so. So, worse case (touchwood) my mortgage on this property will be paid off in 18 yrs, and I will own outright a flat which SHOULD be worth £150,000 ish in 15 years, giving me a monthly incoming of £550 rent (thats what my neighbours is renting for now).

Only issue is the poxy leasehold... but the way I look at it is that I am paying £4000 now to have a pension (or part there of) in the future.

As you can probably tell, I think Im right in this plan, would just like agreement lol!

ultrarunner

I was in a similar situation last year. Get the lease sorted asap. You'll struggle to sell or re-mortgage without a lease above 80 years.

It will only go up in cost if you leave it longer. I don't regret it, even if it did cost 9k. Make sure you use a reputable solicitor who has handled lease extensions before and make sure any renegotiation of liability for service charge and ground rent does not result in a big increase in your outgoings - this is your future margin if you rent it out!

Can't comment on your calculations but have you considered housing market stagnating, inflation, a change in interest rates...

Sepa74

Get the lease sorted immediately. There is a very nasty obscure rule regarding the marriage value of leasehold which not many people know about. You are caught in a trap, and the only way to get out of it is to renew the lease asap.

The marriage value is the difference in value of the property caused by the length of time left on the lease.

So if a property with a lease of 50yrs sells for £100,000, but the same property with a lease of 100 yrs sells for £150,000, the marriage value of the lease is £50,000.

So far so good, except that the obscure rule is that you need to split the marriage value between yourself and the freeholder. So when you renew the lease, the value of the property will go up, and you need to share the benefits of that increase with your freeholder.

If the lease is over 80 years, there is a statue that says the marriage value is 0... but unfortunately your lease is under 80 years, so you will need to pay half the marriage value to your freeholder.

Here is the story of a friend of mine - He lived in a house conversion, he lived in the top floor, other leaseholders on the ground floor. His lease was 74 years, theirs was over 80 years. They decided to buy out the freeholder (slightly different, but the rules around marriage value are the same).

It cost the ground floor lease holders £2,500 to buy out the freeholder, but it cost my friends £14,000 - why? Because the difference in value to the flat of having a short lease vs share of freehold was £23,000!!!!

Your marriage value shouldn't be so extreme because you're extending the lease, not purchasing it.

But the moral of the story is get that lease sorted NOW!!!!