Lease question

lisyloo

Have seen this flat that looks quite nice, but is about £200K too cheap.
We think this is because it's only got 18 years left on the lease.
What does this mean in practice i.e. what is the risk?

http://www.rightmove.co.uk/property-for-sale/property-60417437.html

We would be looking for a pied-a-terre for about 5 years, so the lease running out wouldn't affect us personally.

If the risk is properly priced in then is this a good way to get a (relatively) short term pied-a-terre for less money.

Would be grateful if someone can explain the risk and yes we would need mortgage.

Cheers

lewishardwick

There are some lenders who will offer on a short lease in certain London areas. But I have a feeling that 18 years may well be too short, even for them.

anselld

The risk (certainty) is that the value diminishes to zero in 18 years time regardless of any other movement in property prices.
It is not mortgageable.
It will be hard to sell on.
It will be very expensive to extend the lease.

However, as you say, if correctly priced it may represent fair value. Presumably London at that price but impossible judge value without a lot more info.

lisyloo

Thanks.
Won't work for us if it's cash only.
We might be able to be cash buyers if we take a lump sum in retirement, but at that point we wouldn't need a flat in London !!

AdrianC

lisyloo wrote: »

Have seen this flat that looks quite nice, but is about £200K too cheap.
We think this is because it's only got 18 years left on the lease.
What does this mean in practice i.e. what is the risk?

In 18 years time, ownership of the flat reverts to the freeholder, unless the lease is renewed. There would be no compensation for that, because you're buying the last 18yrs of the lease. No more.

We would be looking for a pied-a-terre for about 5 years, so the lease running out wouldn't affect us personally.

It would. In five years time, you'd be trying to sell a place with 13 years left before it was valueless.

£200k is not enough discount.

The statutory lease extension calculators can't go below 40yrs, even in prime central London (50yrs elsewhere). For a £550k flat in prime Central London, like this, the lease extension would be £130k with 40yrs left. With less than 20...? <wince>