My lease extension dilemma

r2theb

Let me set the scene, I bought my one bed flat 2½ years ago in Putney, London for £148k with the knowledge that it had a fairly short lease on it (71 years at the time). It now has 68 years left on it and now that I’ve been the leaseholder for the required 2 years I’m looking into extending the lease.

I thought this would be a good idea as I’ve always been under the impression that the amount paid out for the lease would be more than covered by the increase in the property value as a result of the extension. However, I’m surprised at the cost of the lease extension - £15-17k as discussed informally with a valuer who has already valued a number of similar flats in the same block. I don’t have a spare 15-17k knocking around and would need to take out a loan of at least £10-12k from somewhere. I’ve had a look at the kind of rates Halifax (who my mortgage is with) will lend this kind of money to me at and it’s not very good (poor rate, tied in for 10 years etc). I’ve also had a look at flexible loan places such as Egg where you can pay off lump sums and there are no early repayment penalties (but an APR of 9.9%). Both of these options don’t really appeal to me.

I’m considering selling my place and buying a new place with my girlfriend early next year and now I’m wondering what the best way forward is for me and my flat. We’re in no rush to move so don’t need a quick sale (we’ll live at her parent’s amply sized house until we’re ready). One final piece of information …. I saw a flat in the same block that is exactly the same size as mine sell for £215k a few months ago.

As I see it, my options (and questions) as:

1) Get a loan out via Egg/Halifax and extend the lease before selling
a. How long does it normally take to extend a lease and can I hand over that process to a potential buyer?
b. Will the increase in property value from the lease extension be enough to cover the cost?

2) Don’t extend the lease, sell it as it is, taking a hit on the property value
a. Will first time buyers be able to get a mortgage on a lease that has a term of 68 years easily? From my own research, I believe the answer is yes but it’s clearly not ideal.
b. Same as question 1b I guess, how much less will the property be worth with only a 68 year lease?

3) Any other ideas!?!


If I choose option 1 then I fear that I’ll be paying this off for the next 5 years and paying a lot of interest on this.
If I choose option 2 then I fear that it will take ages to sell (not a major problem). However, I also think that someone trying to get on the property ladder might take a place with a short lease just to get on the ladder and then think about extending it themselves in the future.

Any help, thoughts and advice would be greatly appreciated!

carpetbelly

I don;t know a huge amout about leaseholds (I really should considering I have one but I'm lucky that mine's over 100yrs). But surely there's an option of maybe releasing a bit of equity to pay for this and then sell at the full price and give a new buyer less hassle. That surely is another option, I'm not saying that would be the best option though. On that front I wouldnt know.

cattie

Putney is a very desirable area, so I would expect a flat with an extended lease to be able to recoup the cost of a lease extension quite easily.

If you really can't afford the cost or time & effort in waiting out the period it takes to extend the lease before selling, then it is possible to start the process in readiness for any prospective purchaser. However, to achieve the best possible price, it will be in your interests to sell the flat with the newly extended lease.

A flat with a 68yr lease isn't going to be as appealing to prospective purchasers as one with an extension. Some lenders want the lease to have a remainder of 50 yrs after the mortgage term has ended & in these days when mortgages of 30-40yrs are becoming quite common, this can severely limit the appeal of your property.

You need to bear in mind also that the shorter the lease gets, the more costly it becomes to extend.

You can get plenty of information about extending you lease from these people. http://www.lease-advice.org/newintro.htm They are a government funded agency & a valuable resource for anybody buying or owning a leasehold property.

There is a useful calculator for getting the rough cost of extending a lease here. http://www.tenancy-agreements.co.uk/lease.php

EdInvestor

I'd suggest you get the opinion of a few agents as to the likely valuation of the property with/without the lease extension (but with the process set in motion under the two year rule, which should resolve any problems with lenders).

Richard_Webster

Why not agree terms with the Landlord for an extension and then offer it as part of a back to back deal for your buyer, i.e you use his money to buy the lease extension?

Walk through of how a solicitor acting for you would do this here:

http://www.houseweb.co.uk/house/forum/Forum1/HTML/000429.html

Badger_Lady

My flat had 72 years remaining, and we had to organise the lease extension as part of the sale (applying in my name, then transferring to buyer's name post-exchange) so I didn't have to pay for it.

HOWEVER - I think I was very lucky to find a buyer so willing to swallow this (they didn't know when they first looked around). The shortness of my lease (which was not as short as yours) would put people off even coming through the door.

It also caused heavy delays in the sale, with all the stress and financial pressure that comes with it - a sale that could otherwise have been 6 weeks ended up at 5 months.

r2theb

Thanks for all your responses guys .... they've been really helpful! :T

I've spoken to an estate agent in the area and his opinion was that if I didn't extend the lease, any prospective buyer would simply want to know how much the lease extension would cost them and reduce their offer by this amount. I'd also be reducing the desirability of the flat and adding complications to the sale process (as Badger_Lady seems to have had). He also thought that the cost of the extension would be covered by the realisation of the full property value.

It seems to me that I should go ahead and kick off the lease extension process. The only question now is now, where to get my £12k-£15k from!

I have some newbie ideas/questions around this and would appreciate your thoughts .....

My idea is to take out a flexible Egg loan (high APR 9.9% but no charges for early repayments and lump sums); extend the lease using loan money; sell the flat (whilst buying a new place with girlf); keep £15k of the money made on my flat sale to pay back the Egg loan (as opposed to putting this towards the deposit on the place). Theoretically, I should only have the Egg loan for 2-6 months depending on how long it takes to buy/sell.

Does that sound feasible or am I talking rubbish?

turk3y

hello all, first post

I am just in the process of extending my lease in Colliers Wood, the figure you mention seems pretty accurate, we have now settled on 18.5k for a property very similar in lease length, this is not including of all the fees involved. I phoned up our mortgage provider and they are happy to give me an extra 20k to pay for this but it is at a higher rate than my mortguage, this is easy for me as there are no real fees involved with settling it early so will only cost me a few months of interest till i sell.

I had a good chat with the surveyor when he came round, very nice chap I can recomend him if you need one (left me feeling very confident and not at all scared, which I confess I was at the begining of it all), based in Wimbledon.

He said you could sell your flat on the provision that you will have an extended lease, and once you have a buyer use their deposit to pay for the extension but this could take some time as the freeholder can drag his heels if he wanted to, and if he knew you needed it done quick probably would to bully a higher premuim out of you. The surveyor did not recomend this.

You can also serve the notice and then transfer that right to extend the lease onto your buyers so they dont need to wait 2 years, I am sure you could use their deposit to pay the inital fees if they make it a condition of sale. Again not recomended by the surveyor.

He advised us that its easier and better for us to sort it before sale, this way it will not scare or intice buyers to haggle as much or with basis. They get the long lease that they need for comfort and we get top premuim for the flat.

as I was intending to sell after the lease is extended and my fixed deal was up I took out a interest only deal with no legal / setup fees, I will overpay to make it in effect a repayment mortguage but also leaves me free to reduce my payments to bare minimum should I have any other expenses coming up that month, such as legal fees for the lease. I currently plan to add the cost of the final bill to the mortgage, its at a slightly higher rate than my main mortgage at 6.6 or 6.8 but in real terms is £110 a month interest only, plus a one time fee of £150 to set it up and no aditional charges when I clear it. I will have to shoulder this cost till I sell, but hopefully this will not be too long, and I can overpay any part of it when I want.

I hope that anwsers your question, kind of got onto a rant almost there somehow, anyhow if you have any questions regarding my experience let me know.

Entertainer

Banks wont normally give you a mortgage on leases with less than 70 years to run so yes, get it extended. And watch out for this in the future. If it's approaching the 80 year mark then I would be considering it carefully as part of a purchase.

For your loan, have you thought of a 0% balance transfer?