Mortgage on property with 52 year lease

livalicious

Hi there, I would really appreciate some advice from any mortgage advisors out there.

My boyfriend and i are first time buyers and have found an amazing two bed maisonette in an area in the south east of london that we really like. We've been looking since Feb, and this is best one we've seen so far. Its on the market for £195 000, the vendor has relocated to Spain and wants a quick sale, and is leaving all the furniture. However, there is only 52 years left on the lease, and he is not likely to extend it himself. The EA advised us that he is willing to drop the price to £175 000, as to extend the lease to 99 years would cost between £18 000 (£250 ground rent) and £21 000 (peppercorn rent).

Now before we even consider making an offer we would like to make sure we not getting in over our heads.

We are hoping to put in an offer for £165 000 - £170 000 max. We have £20 000 as a deposit and joint income of £52 000, no debts whatsoever, and good credit ratings. We would like a fixed rate term of at least two years. In two years we hoping to remortgage to get the £20 000 or so to extend the lease.

A mortgage broker/advisor at L&C said we may be able to get a mortgage but with a) not so good interest rates b) we would have to reduce the term we want of 25 years to 20 years or less c) we may have to get an interest only mortgage and then make overpayments to reduce the capital (if the mortgage lender allows it).

Does this sound feasible or would we better off looking for a so-so property with less complications.

Any advice would be welcomed.

Thanks!

herbiesjp

The figures look fine in terms of income multiples etc

The complications arise with the lease scenario, however you should be able to find lenders that will agree the mortgage for you now - depending on what you are looking for in terms of rates yo may well have to jiggle around with the criteria of your chosen lender, but you should be fine.

However I would look to get the wheels in motion for the extension as soon as it is legally possible to do so, and lenders will be happy for you to raise the funds via a re-mortgage if that is the way you want to go about it - assuming there is enough equity for you to do so.

livalicious

herbiesjp wrote: »

However I would look to get the wheels in motion for the extension as soon as it is legally possible to do so, and lenders will be happy for you to raise the funds via a re-mortgage if that is the way you want to go about it - assuming there is enough equity for you to do so.

thanks herbiesjp, im aware that we would only be able to extend after two years of ownership. So we were hoping to get a two year fixed rate and then remortgage and apply for the extension at the same time. With talks of there being a cooling of the market or even drops in prices in the next two years or so, would this affect us in terms of getting a remortgage even with us having £20 000 equity. (sorry if this doesnt make sense, i confuse myself sometimes)

herbiesjp

Currently you have equity of £20k if you put the £20k deposit.

Making overpayments on an interest only mortgage would increase the equity, as would having a repayment mortgage.


However, you have be be aware, as you have stated yourself that there could be a cooling down of prices. Houses prices may even take a dip - nobody knows.

So if prices did go downwards, your equity would be less, if you were relying on the £20k deposit alone.

The fact the cost of the extension is between £18 and £21k means that if you re-mortgage, potentially you could be looking to borrow at 100%, and that would entail 100% mortgage rate deals which would be higher.

So trying to build up enough equity to allow for the re-mortgage, but still remain or cheaper rates, should be a goal to set yourself

mlz1413

OP please be careful, i've just bought a flat with 54 years on the lease and had to get the lease extended to get it mortgaged, this cost nearly £7k and only 25 years was added. Not all leases are extended to 99 years - do you have in writing from the lease holders what you get for how much? or is everything verbal?

You say the owner is going to Spain so doesn't want to extend lease, but if he could do it as has lived there over 2 years why is he unwilling? Could you make an arrangement that he will extend lease if you pay a deposit (to show your commitment).

Remember if you buy this with 52 years left, wait 2 years then only get an extention for 25 years your going to have to sell straight away (while you have 75 years on lease) or reduce the price as the current vendor is doing.

Bargins are very rare, check why the price is lower than you expected / current market value.

Good Luck

angelavdavis

Hi,

I agree with mlz, be very careful here.

I suggest, as a condition of the sale, that he extends the lease (as it will cause you hassles otherwise) and you pay full price for the flat. It isn't that complicated to do and will enable you to get a more competitive mortgage rate.

The reason I say that is, what happens if the lease gets sold on and the new freeholder increases the lease to a cost you can't afford in two years' time?

livalicious

Thank you for all your advice, we considered all things and decided not to go for this property. Too many things to worry about, and much to risky for novices like us.