Leasehold Extension

RDM2008

Hi All


In a difficult position and was wondering if anyone would be able to offer some advice. Myself and the wife brought 2 bed maisonette just over 9 years ago. At the time we were told there was about 60 years left on the lease and if we could afford to renew the lease we should. Now I can't remember if we instructed the solicitor or if he did this as part of the convancy but he acquired a price for a new lease which was £12,750.00 for a 125 years lease with a £300.00 ground rent per year which will double every 25 years. At the time we had our first child on the way (The reason for buying the property in the first place), but we did not have the funds available to renew the lease and did not think it would be a problem in the future. Since then we have had a second child and they are both sharing the same bedroom. We purchased the maisonette for £105,000.00, £100,000 was on mortgage and the other £5,000.00 was from a secure loan on the property. The secure loan was for £30,000.00. The mortgage was interest only for the first 5 years (Again probably not the best option now looking back at it but in 2006 this gave us some security with a young family and really the only option to get onto the property ladder). So currently we owe just over £95,000.00 on the mortgage and just under £22,000.00 on the loan, and the property has a value of around £140,000 with a good lease.


We have been investigation the option to move home for 2 reason's. Reason 1 we have 2 children a boy and a girl both coming up-to teenage years within the next 4 years, so we would like to move to a 3 bed house so they can have there own bedroom and there own space. Reason 2 we have no garden so when it comes to the summer months we are all kept inside unless we go down the park but that is not always an option.


Sorry for the ramble but want to give some back information.


So our problem is we want to move, we have been to see a bank mortgage adviser and they have told us what we could borrow on a mortgage (we have 2 appointments setup to see independent mortgage advisers next week). We have had 2 Estate Agents in and both have brought up about the leasehold which we did not think was an issue and then they dropped the bombshell the lease is 2 short, we only have 49 years left on the lease and if we want to make the property available to the most number of people we need to extend the lease or renew the lease. Looking around online and basically everyone says that once you are under 60 years then extending the lease is a big issue and might be cheaper to buy the Freehold but under the Leasehold Reform Act 1993 if the leasehold is below 50 years we can't apply to buy the freehold. Also I have spoken to the Management company and they were very quick to say we could not buy the freehold even if all 4 parties in the block would like to. There is an application form (Which they charge £125.00 once submitted), to make the enquiry to the freehold for a lease extension.


Now probably not the best thing to do but there are some leasehold calculators online and most of them will not go below 60 years left on the leasehold, I found 1 that would go down to 50 years left on leasehold and they estimated the cost to be somewhere between £20,000 and £25,000 to renew, but the fact we are at below 50 years the cost could double that amount.


Problem I am at now is I don't know what to do for the best. From what they are saying we are not going to be able to re-mortgage for the same reason why a new buyer could not buy the property as the lease is too short, our only option is to sell to a cash buyer but they will want to pull down the sell price which we need as much from the sell to cover moving costs and deposit on a new home. Even if we stay put for now I can't raise the founds to buy the new Lease. Something one of the Estate Agents suggested was a Deed of Variation, but reading up one that it still only makes the property available to a cash buyer.


I am sure there are a lot of people out there in the same boat, but without winning the lottery I am stuck.


Any advice would be greatly helpful.


Richard

Nobbie1967

What happened to the other £25k from the secured loan?

Pixie5740

You could (I think) include the lease extension as part of the sale which will open you up to more than just cash buyers. However, the cost of doing that plus clearing the outstanding mortgage plus repaying the secured loan plus selling costs is going to leave you with zero, perhaps even less than zero.

You're in a bit of a Catch-22 situation. You could stay put and focus on overpaying the mortgage and/or secured loan but the longer you leave the lease extension the more expensive it will be.

You either keep going as you are or sell up and rent a property more suitable for your families needs. That said there's nothing wrong with siblings sharing a room I'm sure it won't get all Flowers-in-the-Attic.

always_sunny

I am curious to know if anyone has done this... assuming they owned the property for 2 years to serve S42 assigning the benefit to the buyer.
Ref http://www.lease-advice.org/information/faqs/faq.asp?item=189

How complex is it in reality?

AdrianC

You borrowed £130k to buy a £105k property with 60yrs left on the lease.

9 years later, you still owe £117k on a property that would be worth £140k with a good lease, but is almost valueless with the 49yrs remaining.

I can't see you have much choice but to try to raise the price of the lease extension from somewhere - you have £23k of equity, with a good lease, but are in massive negative equity with your current lease.

A higher interest rate on the finance for the lease extension is less important, because it would only need to be short-term finance. After all, once the extension's done, you can re-mortgage...

Even if the lease costs you £30k, you are still ahead of where you are without it.

If you can't raise £30k from somewhere, then it's very unlikely you would be able to get a sufficiently large mortgage to buy a three-bed house anyway.

Arthritic_Toe

This looks like the infamous Northern Rock 'Together' mortgage, or something similar. One left-field suggestion for you to consider...
You could just walk away from the mortgage and the debt (and the house), and declare bankruptcy. It would be difficult to find a rental, but maybe you could do it with a guarantor or something.
Not saying you should do this, but maybe worth doing the calculations.

RDM2008

Thank you all for the advice. To answer the first reply, the other £25,000.00 was to clear debts, I had made some bad finance decisions and had taken one some debt which I needed to clear. The Loan and Mortgage was with Northern Rock before they went south in 2008. What they will let me do is something they called "De-Link", where I de-link the secure loan from the Mortgage and basically turn this into an unsecure loan at an interest rate of 9.78% variable.


From what you are saying I think our only option would be to de-link the loan from the Mortgage, then re-mortgage the property to something like £125,000.00-£130,000 and buy the extension on the lease, and then overpay as much as possible on the new mortgage for the next 2-3 years and hope the property market does not take a turn like it did in 2008/2009.


Thanks for the advice.


Richard

RDM2008

Hi AdamC, now looking back on what we did 9years ago was pretty wrong but that was what the mortgage adviser said would be our best bet. Not going back to the adviser thank god. Should have seen the warning signs 9years ago and walked away from buying the place. Thing you learn in 10years like check the eclectically wiring in a property before buying.

AdrianC

RDM2008 wrote: »

The Loan and Mortgage was with Northern Rock before they went south in 2008.

And that's why...

What they will let me do is something they called "De-Link", where I de-link the secure loan from the Mortgage and basically turn this into an unsecure loan at an interest rate of 9.78% variable.

You're paying what rate on your mortgage currently?

From what you are saying I think our only option would be to de-link the loan from the Mortgage

Leave that on one side for the moment, because it's not really relevant.

then re-mortgage the property to something like £125,000.00-£130,000 and buy the extension on the lease

But you won't get that mortgage, because the lease will still be too short.

You need to raise the cost of the lease extension, and extend the lease. Only THEN will you have a flat that's worth £140k and is mortgageable, so only then will you be able to consider re-mortgaging.

If it costs £30k to extend the lease, you have to subtract at least that £30k from the £140k "value" - because that assumes mortgageability - so your current value is south of £110k. A good way south, because of the PITA-factor. So, right now, what you have is £117k of debt secured on a flat that's worth - at most - £100k, but with a very small market, which further reduces that value.

To sell, you need to find somebody who wants that flat, AND who doesn't need a mortgage, AND is happy to spend at least another £30k on a piece of paper, AND is happy to put up with the hassle factor.

cloo

I'm pretty shocked anyone (unless it was the selling agent) advised you to buy at all with only 60 years on the lease. It's ridiculous that the lease system still exists, it's a total anachronism and a major cause of misery for so many people. I guess the problem is that they are assets that people have money invested in so you can't just magic them away. Sorry, no advice - I hope you find some way out.

RDM2008

Thank you all for your advice. All understood and I know now what I must do. I think what I will have to do is get a price for the lease extension from the Management company (At the same time ask for the Freeholders name and Address for my records), and then see if I can get a Deed of Variation in place so that if we can get a re-mortgage in place to pay for the new lease, then as the re-mortgage goes through the new lease will come into affect and put the value into the property that should already be there. What I can't believe the person we brought the property from would have had the same issue when they were buying 2 years before we brought the property and they should have had the lease renewed. Guessing that might have been why it was a bit cheaper, they really should have forced the seller to buy a new lease before buying it there self's.


Again thank you for all the advice, it has been very helpful and insight full.


Richard