Buying flat with a short lease

itgirlinuk

Hi,

I am a first time buyer and I started looking for a one bedroom flat in Central London. I know its expensive, but thats where I want to live - hence a small flat and looking for a bargain.

There are some flats going for a bargain because it has a short lease. People tell me that mortgage companies won't fund me if its a short lease. But I can't understand why? :-/

Can anyone tell me why I should not buy a flat with a short lease? Surely I will be able to extend the lease, once I have owned it for more than a year? ???

Can anyone enlighten me?

Thanks in advance.


https://www.hungersite.com

payless

Do you know how much the lease extension would cost?

Woby_Tide

it's something to do with the uncertainty about what the freeholder can do when a lease expires, we were advised anything with less than 30(might have been 40) years was seen as risky due to buyer having a 25 year mortgage, then problem of selling it on after even 5 years means the lease would expire on next owner. You may well have to negotiate a new lease whilst buying to get it back to 99 years say

martinhp

Lenders don't usually like anything less than 25-30 years left on the lease. WHEN THE MORTGAGE ENDs. This is because anything less than that would be hard to sell, should they repossess it from you. Reason for that is when a lease runs out , ownership of the flat goes back to the freeholder.  The shorter the lease the more expensive it gets to renew it. But, I don't think the freeholder has to renew the lease if they don't want to. The lawyers out there may want to correct me ???

itgirlinuk

Thanks for the clarification. Does it mean that if I bought a short-lease flat with cash (not that I afford to!), then I run the risk of not able to extend the lease? ???

So, I could technically lose all the money if the freeholder does not want to extend the lease. Right?

payless

Subject to a number of exclusions ( so check it out) there are usually a number of options are open, including possible extension or "buying freehold as a group of leaseholders.

But on a short lease the costs can be high to do either.

I have in the past done mortgages on short leases, but its getting harder to find the criteria loopholes.

If you were then not in a position to find or borrow the money to "extend/ buy" the lease at a later stage ( or did not qualify- NOTE rules on residency have changed) the property would be at risk - hence why lenders don't like short leases

trafalgar_2

Thanks for the clarification. Does it mean that if I bought a short-lease flat with cash (not that I afford to!), then I run the risk of not able to extend the lease? ???

So, I could technically lose all the money if the freeholder does not want to extend the lease. Right?  :'(

They normally can't refuse to increase your lease or even in most cases stop you buying the freehold ......should you wish to.

http://england.shelter.org.uk/advice/advice-195.cfm#wipTest-508-4

There is better info somewhere on the site as this has come up before and I will try to find it

Loaded_Bachelor

In my opinion it should be illegal to sell someone a property and not hand over the freehold (or their property's proportion of the whole buiding) at the same time.

A classic example of the abuse of the leasehold system can be seen all over the country where developers/builders/business people are buying up large properties and converting them into multiple flats.

They then sell the individual flats on for an overall profit (which is fair enough) but hold on to the lease, which is not fair in my view. If you buy physical property from someone then why should you be beholden to them for ever more?

I feel that unless there is an exceptional reason for their being a separate leaseholder (e.g. a small property in amongst a much larger public building) then all this greedy so and so leaseholder nonsense should not be allowed. It just strikes me as an unfair concept, reminiscent of something from the old feudal system.

Woby_Tide

on the other hand some people can't be arsed with having to get the other 9 flat owners in their block to agree when and how much to pay for external/internal decoration/maintenance and so on and are greatful that some leaseholder takes the onus and deals with that side of issue/lays down ground rules that everyone abides by. Having been a leaseholder, a freeholder with control over leaseholders and a freeholder in flats the first was definitely easiest in terms of running if maybe marginally more costly.

Loaded_Bachelor

I notice today (according to BBC2 teletext) that a new law has come into effect today creating something called Commonhold property.

The article infers that it would be the same as leasehold but with an infinite time period on the "lease" and therefore no need to ever renegotiate a dwindling time lease.

Although specifics of how this works are sketchy at this point, I believe that this is a good development as it will mean that when you buy a property "Commonhold" you really do own the property for all time and the Leaseholder's ownership of the land or of the overall development will no longer make you feel like they have an unfair hold over you.

Obviously the sentiments of my previous rant have been stated in other places before, enough for the law to be changed.

I would like to know whether the new law applies to existing Leasehold properties and if so how one would convert an existing Leasehold into a Commonhold.

yonk

I live in Scotland and here all flats are the equivalent of freehold. I spend a reasonable amount of my time giving advice on how to deal with communal repairs to flats when the other owners don't want to or cannot afford joint repairs. It causes the same amount of distress as dealing with a freeholder. And sometimes it can be worse as you live across the stair from the person you are arguing with whilst the tenement falls into further disrepair.

The law is being changed up here so that a majority of owners can do repairs but you still have to get everyone to pay - flats with leasehold arrangements have this done by a 3rd party and if the system is set up well and the management company do their job properly then it works well.

Like everything else in life, it's when the system is poorly set up or administered or when people take the profit without doing the work that it falls down. Rights and responsibilities...

It will probably work best for new developments. The hurdles to convert were quite high in the draft legislation and I haven't looked at the new Bill.