Lease extension questions

jamels2

As the owner of a leasehold flat with 63 years remaining I have a few questions:

-why should you extend the lease? If you have the funds or can remortgage to do it, should it come before any other investments, additional property or otherwise?

-how urgent is it to do so, after 80 years are you effectively throwing money down away?

-should you use your statutory rights to add 90 years and no ground rent? Are you silly not to?

AdrianC

jamels2 wrote: »

As the owner of a leasehold flat with 63 years remaining I have a few questions:

-why should you extend the lease? If you have the funds or can remortgage to do it, should it come before any other investments, additional property or otherwise?

You will already find it hard to sell the flat (which, of course, means a much lower sale price) because buyers will be restricted in the mortgages they have available. As time ticks down, that'll become more serious.

Ultimately, in 63 years time the flat will cease to be yours, and ownership will revert to the freeholder. You (or your heirs) will receive no money for it.

-how urgent is it to do so, after 80 years are you effectively throwing money down away?

The longer you leave it, the more it'll cost.

-should you use your statutory rights to add 90 years and no ground rent? Are you silly not to?

It's very unlikely to be cheaper if you negotiate directly, unless the ground rent starts to spiral. Again, that'll make sale difficult.

Irratus_Rusticus

jamels2 wrote: »

63 years remaining

According to latest relativity graph from Savills...

pdf.euro.savills.co.uk/uk/residential.../leasehold-enfranchisement-june-2016.pdf

a 63 year enfranchiseable lease is worth less than 85% of full market value. At 55 years it is worth under 81%. So in theory only (markets don't work on theory) you'd lose 4% for every £1000 of current full lease value. As said though, few lenders will lend on 55 years (see CML website)

jamels2 wrote: »

-how urgent is it to do so, after 80 years are you effectively throwing money down away?

See above for how the value drops. The cost to extend increases by about 4-6% per year excluding inflation on valuation.

jamels2 wrote: »

-should you use your statutory rights to add 90 years and no ground rent? Are you silly not to?

I'd say yes. The informal route is fraught with rip offs depending on the freeholder and there is no guarantee a deal will be completed.

If you want to play with theoretical numbers, run this formula in a spreadsheet and mess with the starting values and remaining term (but allow for ground rent increments):

If the GR goes up more than three times you'll need a bigger formula but this isn't relevant with low terms.

a1: The remaining term in years (forget the decimals for an estimate)
a2: Years remaining that the 1st ground is payable (leave out if irrelevant)
a3: Years remaining that the 2nd ground is payable (leave out if irrelevant)
a4: Years remaining that the 3rd ground is payable (got to be relevant!)
a5: First GR increment in pounds (leave out if irrelevant)
a6: Second ground rent payable in pounds (leave out if irrelevant)
a7: Third ground rent payable in pounds (got to be relevant!)

(All above from the lease)

a8: 8 {This is the yield rate as an integer - just for estimating}
a9: 5 {This is the discount rate as an integer - case law based}
a10: Present market value in pounds (what similar flats on similar terms sold for)
a11: Savills 2016 relativity % for the remaining term (download their free pdf)
a12: =(A10/(A11*100))*100
a13: =-PV(A8/100,A2,A5)
a14: =-PV(A8/100,A3,A6)/POWER(1+(A8/100),A2)
a15: =-PV(A8/100,A4,A7)/POWER(1+(A8/100),A2+A3)
a16: =SUM(A13 : A15)
a17: =-PV(A9/100,A1,,A12)
a18: =PV(A9/100,A1+90,,A12)
a19: =SUM(A16 : A18)
a20: =(A12-A10-A19)/2
a21: =A19+A20

a21 reports the premium excluding professional fees. Allow £4K for those.

Bear in mind the freeholder will want to value the market uplift high and the existing value low compared to relativity graph % as that way they increase their cut.

AdrianC

Irratus_Rusticus wrote: »

According to latest relativity graph from Savills...

pdf.euro.savills.co.uk/uk/residential.../leasehold-enfranchisement-june-2016.pdf

Working link - http://pdf.euro.savills.co.uk/uk/residential---other/leasehold-enfranchisement-june-2016.pdf

jamels2

Ok thanks for the replies. It doesn't appear to be the end of the world if I hold off extending for another few years. Or at least until getting a mortgage becomes difficult? At 63 years I've had a problems getting a mortgage. It was more problematic due to my basic income being under 25k and this being my only property!

AdrianC

http://www.lease-advice.org/calculator/
Calculate the cost of extending it now.
Calculate the cost of extending it in five years time.
Think about how you might raise the money, now and in the future.

marksoton

Bearing in mind the content of your other thread...

https://forums.moneysavingexpert.com/discussion/5549076

I'd say you're sitting on a ticking time bomb....

jamels2

A ticking time bomb, what do you mean???