Extend Your Lease guide discussion

badenmorgan

Hi all, I wonder if you can help? I’ve updated my recent post…
I am a shared ownership flat 'owner' where I own 35% of a flat and housing association own rest, and I pay rent on portion I don’t own. I recently became interested in staircasing up to 100% via a new mortgage with my bank. The issue I have since discovered is my lease having 69 years left on it means I doubt I will be loaned any more ££ by my bank, and to extend the lease I’ve estimated to be £45k! As I’m not 100% owner, my housing association operate an ‘informal’ lease extension option, including their fees (c.£1000), the premium (financial loss, 50% marriage value, compensation), not including my valuer’s and solicitor’s fees.
Value of flat in 2006 was 220k, Zoopla says now around 450k (this I think assumes the lease has 83+ years). If I sold up I could gain some equity on the 35%, but a lot of this would be eaten away by the lease devaluing the flat. Plus I don’t want to move.
I’m in a bit of quandary as to what to do. I started out q. positive about my staircasing possibilities, but now seriously concerned about prospects, and gutted that I wasn't aware of the impending short lease issue 13 years ago. It seems if I want to staircase I have no option but to extend the lease.
Is it possible/viable to extend a lease by say 15 years, would it be any cheaper than 90? Should I try a mortgage lender who specialise in short-term lease mortgages, or just ask my mortgage lender if they will lend me the £40k for the lease extension, plus an amount to staircase?

Tom99

badenmorgan wrote: »

Hi all, I wonder if you can help? I’ve updated my recent post…
I am a shared ownership flat 'owner' where I own 35% of a flat and housing association own rest, and I pay rent on portion I don’t own. I recently became interested in staircasing up to 100% via a new mortgage with my bank. The issue I have since discovered is my lease having 69 years left on it means I doubt I will be loaned any more ££ by my bank, and to extend the lease I’ve estimated to be £45k! As I’m not 100% owner, my housing association operate an ‘informal’ lease extension option, including their fees (c.£1000), the premium (financial loss, 50% marriage value, compensation), not including my valuer’s and solicitor’s fees.
Value of flat in 2006 was 220k, Zoopla says now around 450k (this I think assumes the lease has 83+ years). If I sold up I could gain some equity on the 35%, but a lot of this would be eaten away by the lease devaluing the flat. Plus I don’t want to move.
I’m in a bit of quandary as to what to do. I started out q. positive about my staircasing possibilities, but now seriously concerned about prospects, and gutted that I wasn't aware of the impending short lease issue 13 years ago. It seems if I want to staircase I have no option but to extend the lease.
Is it possible/viable to extend a lease by say 15 years, would it be any cheaper than 90? Should I try a mortgage lender who specialise in short-term lease mortgages, or just ask my mortgage lender if they will lend me the £40k for the lease extension, plus an amount to staircase?

Until you staircase to 100% you cannot use the statutory lease extension process (+90 on lease and £0 ground rent) so you are at the whim of the HA and have to play by their rules on what you can do and how much they will charge.

If a new long lease of 100% equity with 100+yr lease and £0 ground rent was worth £450k then, in statutory lease extension terms, you would expect the 69yr lease to be worth about 90%-92% of that, so about £405k-£410k and since you have to pay 50% of the marriage value, you might have to pay say £30k to extend the lease.
The problem you have is that some HA can want to charge a full lease extension premium (ie assuming 100% equity) even if the owner only owns say 35%.

If that's what your HA do then that would be an exceedingly poor deal as you would be paying 3x as much to extend your 35% share as would be fair and, on top of that, if you then staircase to 100% on the new longer lease you will, presumably also be charged much more because it is now a long lease rather than a 69yr one. A double whammy.

Given the figure involved I would say you need to employ a surveyor now to put some more exact figures on your options. The information you need before you can decide how to take if forward include:

1 - The cost of staircasing to 100% on the 69yr lease.
2 - The cost of a statutory lease extension from 69yr to 159yr once you have 100% equity.
3 - The cost and terms of extending the current 69yr lease of 35% (there may be several options since it's at the discretion of the HA)
4 - The cost of staircasing to 100% for the new extended lease under item 3
5 - Whether the HA would entertain a combined staircase to 100% with a lease extension at a fair price. (ie something you could get a mortgage on)

All of the above will come with costs so remember to add those into your figures.

There are probably more questions you need answers to but, once you have as much information as you can get, a way forward may be clearer.

Tom99

The Law Commission has now published it's report on reducing the price payable when extending a lease or buying the freehold. I have posted a summary of the report here:
https://forums.moneysavingexpert.com/discussion/6089756/law-commission-report-on-reducing-price-of-lease-extensions-published

badenmorgan

Tom99 wrote: »

Until you staircase to 100% you cannot use the statutory lease extension process (+90 on lease and £0 ground rent) so you are at the whim of the HA and have to play by their rules on what you can do and how much they will charge.

If a new long lease of 100% equity with 100+yr lease and £0 ground rent was worth £450k then, in statutory lease extension terms, you would expect the 69yr lease to be worth about 90%-92% of that, so about £405k-£410k and since you have to pay 50% of the marriage value, you might have to pay say £30k to extend the lease.
The problem you have is that some HA can want to charge a full lease extension premium (ie assuming 100% equity) even if the owner only owns say 35%.

If that's what your HA do then that would be an exceedingly poor deal as you would be paying 3x as much to extend your 35% share as would be fair and, on top of that, if you then staircase to 100% on the new longer lease you will, presumably also be charged much more because it is now a long lease rather than a 69yr one. A double whammy.

Given the figure involved I would say you need to employ a surveyor now to put some more exact figures on your options. The information you need before you can decide how to take if forward include:

1 - The cost of staircasing to 100% on the 69yr lease.
2 - The cost of a statutory lease extension from 69yr to 159yr once you have 100% equity.
3 - The cost and terms of extending the current 69yr lease of 35% (there may be several options since it's at the discretion of the HA)
4 - The cost of staircasing to 100% for the new extended lease under item 3
5 - Whether the HA would entertain a combined staircase to 100% with a lease extension at a fair price. (ie something you could get a mortgage on)

All of the above will come with costs so remember to add those into your figures.

There are probably more questions you need answers to but, once you have as much information as you can get, a way forward may be clearer.

Tom99, that's exceedingly helpful, thank you. My HA indeed does charge a full 100% lease extension premium. Barclays have said the 69yr lease is not a problem at this stage, they only need 25yrs left on the lease at the end of the mortgage period. That surprised me, but I suppose the rates for such a mortgage won't be as good as if I had a long lease? The list of 5 bits of information make sense to me.
Next as you say is the valuation. Under staircasing the The HA has to appoint the surveyor. They have agreed though to try and get the surveyor to do a combined valuation for staircasing and for a lease extension. Does this make sense? They deal directly with the surveyor so it might be difficult for me to get them to play ball on all the 5 points, unless I can get access to the surveyor myself. I'm paying for it, so I don't see why not.
I'm thinking a combined mortgage to first- staircase from 35-100%, followed by lease extension would be best. I don't want to do 1. independently of 2. as I'd need to back to bank twice. Either I need to know what i can afford to do. Many thanks Tom.

desamax

https://www.bbc.co.uk/news/amp/business-51026374

Tom99

badenmorgan wrote: »

Tom99, that's exceedingly helpful, thank you. My HA indeed does charge a full 100% lease extension premium. Barclays have said the 69yr lease is not a problem at this stage, they only need 25yrs left on the lease at the end of the mortgage period. That surprised me, but I suppose the rates for such a mortgage won't be as good as if I had a long lease? The list of 5 bits of information make sense to me.
Next as you say is the valuation. Under staircasing the The HA has to appoint the surveyor. They have agreed though to try and get the surveyor to do a combined valuation for staircasing and for a lease extension. Does this make sense? They deal directly with the surveyor so it might be difficult for me to get them to play ball on all the 5 points, unless I can get access to the surveyor myself. I'm paying for it, so I don't see why not.
I'm thinking a combined mortgage to first- staircase from 35-100%, followed by lease extension would be best. I don't want to do 1. independently of 2. as I'd need to back to bank twice. Either I need to know what i can afford to do. Many thanks Tom.

That seems a sound approach but I would also appoint your own surveyor.
If the HA surveyor will give you terms for a lease extension (after staircasing), by all means listen to what they have to offer but remember once you have staircased to 100% you can use the statutory extension process, you are not stuck with having to accept the deal the HA 1st offer you.
The only downside to that might be that it's a two stage deal several months apart, staircasing 1st then lease extension.
There is one thing worth checking, to qualify for a statutory lease extension you need to have owned the lease for 2yrs. You will have owned 35% for 2yrs but not 100%. I would hope that does not disqualify you but it's worth checking.

MikeYates

Your decision to extend should include attention to forthcoming legislation. What should have been the 2017 Housing Act (but for Brexit) includes the biggest reform of leashold since 2002, thanks to Peter Bottomley, now Father of the House. It proposes the abolishment of both ground rents and leases of under 999 years. England and Wales are the last countries in the world to have medieval leasehold laws. In Canada, when they switched from Leasehold to Condominium in 2001, courts found that 81% of flats should pay $1 to aquire their share of the freehold due to previous exploitation. This has terrified English freeholders and explains the "heavy lobbying" they undertake to stop reform. The legal sector, called the "Procrastination Industry" by Dickens, has also obviously a lot to lose. Commonhold is the English term for Condominium and has been possible since 2002 but lobbying then made it very difficult and expensive so take-up has been under 1% since.

badenmorgan

I will definitely appoint my own surveyor and check the potential issue with extending on 35%. Thank you. The recent news sounds promising, but I don't think I'm going to wait for any change to legislation that might favour me, it will probably take years to go through and every year seems to add £2k to my extension cost.

MigsyBigsy

Hello All,

in the process of requesting information from solicitors for costs. I have been quoted £4000 + Vat for two flats. Does that seem reasonable?

thanks in advance.
M

ALEXANDRA_9876

Hi Everyone,
We bought flat almost two years ago in London, zone 6. The years left for the lease will be 59 after the 01Sep. The online calculator shows me the value of £39000 to £42000 as extension, plus legal costs. That's a lot!
My questions are pretty simple:
1. What and how can you negotiate to lower down the cost of lease extension?
2. Can one of the arguments to cut the cost be that (even we pay all the service charges, ground rent,we don't cause any troubles) there are a lot of issues management company does not solve about the building? Also we have a lot of safety related issues with drug users coming to our building, there was also STABBING, management company said they can not do anything to secure our building (we just asked to put gate on entrance).BUT THEY JUST DON'T WANT TO. Can we use the argument that building is not secure and nobody does anything?

Thanks for your help in advance.