Buying an extension of lease when buying a property

pepperparsons

Hello,

As a first time buyer I have a quick question about extending leases.
I was thinking of going to look at a property where the current lease has a total of 56 years remaining, but they are in receipt of a quote from the freeholders for an extension to 99 years. It is for £27000.
I was wondering, if we bought the place and bought the extension, can the £27000 be added onto the mortgage? (still within the lending amount that has been offered by the bank of course).

thanks!!

Dave_Ham

You have multiple issues here and should really speak to your broker/solicitor as I fear you may not get detailed enough information here.

The highlights are that the mortgage company are almost certainly not going to lend to you with a lease of this long remaining.

Therefore the existing owner will need to apply for the lease extenstion in advance. Cashflow wise this may be an issue.

Typically places with this sort of lease remaining are for cash only buyers..

pepperparsons

thank you for the advise!

kingstreet

Not so long ago, I arranged a mortgage for a couple who were buying a property with a lease with a residual term of 56 years. There are limited lenders, admittedly, but the property was sufficiently financially attractive to make it worthwhile.

Here's a list of lenders and their minima;-

http://www.cml.org.uk/cml/handbook/englandandwales/question-list/321

In this case, I used a lender which would accept a term of mortgage + 30 years, so we were okay with a 56 year term on a 25 year mortgage.

My clients will purchase the freehold when the two year minimum ownership period is complete and they have the right to purchase it in law.

That's the purchase out of the way.

You will not be able to borrow extra money to purchase the freehold, or to extend the lease. Not at the outset. The lender will lend based on purchase price, or value, whichever is the lower and nothing more. You will have to purchase on the basis of the short lease and look to extend the lease when you have the equity and/or cash to do so.

This may prove undesirable or financially impossible in the future, so you should carefully consider what happens if you are unable to purchase the extention. You will find it very difficult to sell the property.

As Dave said, you need the vendor to purchase the extention before selling, but you would then need the value/purchase price inclusive of this cost to fall within what the surveyor sets as the value. The question therefore, for you and your vendor, is this; will the property be worth what the vendor wants for it, plus the cost of the lease extention?

If it won't, the whole plan falls apart.