Flat with short lease

NameUnavailable

tomgaiger said:

ChloeManoey said:

I'm really, really surprised you got a mortgage offer on that one! Most lenders wouldn't even consider it. 

How will you be paying the 37k to extend the lease? If you have the money available and you are willing to go through the stresses of it, then I guess it's a possible bargain when complete? 

Nationwide's minimum lease is 55 years I believe. Don't quote me on that though! Also it's a 10 year term so maybe that helps? We have the cash to pay for the lease. In theory it is a bargain yes, and it was certianly presented to us as such! However it's becoming apparent that it could be much less of a bargain than we were led to believe. I think it's more the realisation that the EA is trying to pull the wool over our eyes at every turn - he initially said the lease extension would be about 25K - it later turned to an estimate of 37K. Then the initial value of 285K drops to 250K, and the vendor won't budge on price, no matter what the Home buyers report and valuation says apparently. Just seems to be turning a bit sour...

How could any estate agent tell you how much a lease extension will cost? He gave a 'guesstimate' but was apprently a bit out. But do you know if the figure of £37K is correct? You need a formal offer from the freeholder OR (and probably better) go down the tribunal route for an impartial valuation that is binding.

Likewise the valuation. Prices are starting to drop as demand is reducing as we head into winter and more people are losing jobs due to Covid etc. You should be easily able to judge the value by looking at sold prices of similar properties and what is going under offer currently.

If you like the place and if the 'market' value of it is certainly not less than the purchase price pluse lease extension then why worry? OK you may not be getting the deal of the century but if that's all that matters then pull out and start looking for a bargain. Wait until after Xmas when there will be some people desperate to beat the stamp duty deadline on larger properties and there might be some negotiation for buyers who can move quickly.

Most bargains if you can really call them that sell at auction, but you're hampered by needing a mortgage.

steve866

princeofpounds said:

Why is it not worth it if the valuation for the property with a long lease is below 250k? As you say, you are spending ~227k. Most people spending 227k get 227k worth of property, so who cares if the valuation with the long lease is 250, 285 or 230? You would still be getting a bargain.

Perhaps I'm missing something in your explanation of the numbers involved...

Property is hard to value right now, especially flats in London. I wouldn’t say buying a flat for ~£227k (quite possibility more depending on actually lease extension costs, general legal fees etc) which could be worth £250k is a bargain. 

OP what type of flat is it? Are there very close comparable that have sold in the last few months? 

princeofpounds

steve866 said:

princeofpounds said:

Why is it not worth it if the valuation for the property with a long lease is below 250k? As you say, you are spending ~227k. Most people spending 227k get 227k worth of property, so who cares if the valuation with the long lease is 250, 285 or 230? You would still be getting a bargain.

Perhaps I'm missing something in your explanation of the numbers involved...

Property is hard to value right now, especially flats in London. I wouldn’t say buying a flat for ~£227k (quite possibility more depending on actually lease extension costs, general legal fees etc) which could be worth £250k is a bargain. 

OP what type of flat is it? Are there very close comparable that have sold in the last few months? 

That wasn't the point I was making. The point is that the OP's conceptual objection doesn't make much sense. 

merlintess

steve866 said:

princeofpounds said:

Why is it not worth it if the valuation for the property with a long lease is below 250k? As you say, you are spending ~227k. Most people spending 227k get 227k worth of property, so who cares if the valuation with the long lease is 250, 285 or 230? You would still be getting a bargain.

Perhaps I'm missing something in your explanation of the numbers involved...

Property is hard to value right now, especially flats in London. I wouldn’t say buying a flat for ~£227k (quite possibility more depending on actually lease extension costs, general legal fees etc) which could be worth £250k is a bargain. 

OP what type of flat is it? Are there very close comparable that have sold in the last few months? 

It's a 1 bed victorian terrace conversion. Was previously 2 bed but the box room has been gotten rid of to make a large kitchen/diner, in addition to the large lounge and bedroom. Brand new kitchen fitted. We viewed other similar in the area and this was the nicest. Trying to find similar properties sold lately and although nothing directly comparable, I'm struggling to justify even £240K, at which point, the potentiol gains of dealing with the risk of the lease extension are almost completely evaporated.

saajan_12

tomgaiger said:

princeofpounds said:

Why is it not worth it if the valuation for the property with a long lease is below 250k? As you say, you are spending ~227k. Most people spending 227k get 227k worth of property, so who cares if the valuation with the long lease is 250, 285 or 230? You would still be getting a bargain.

Perhaps I'm missing something in your explanation of the numbers involved...

Hi thanks for your reply. I think there needs to be a fair buffer between the £227K and the valuation in order for us to take on the cost/effort/risk of dealing with the whole lease extension process, rather than just finding another property and paying market value. Certianly if the valuation came in at £230, I would think we'd be in a position to renegotiate the asking price since we'd been 'sold' the idea of buying a 285K flat for £227K when in reality that would be demonstrated to be not true by the valuation.

The point seems to be this buffer..
Comparing say a renovated property, there may be a premium in certain markets for a house being turnkey ready vs the hassle of doing the renovations (equally there can be a discount because the buyer doesn't get to chose the interior to their taste). In your case, the hassle is just a paperwork one, and the risk is minimal because you would have a statutory right to extend once the s42 is served. So I'd price that 'buffer' at £5k region, rather than the £22k+ you're thinking. If it was so high, most functioning markets would close this gap as people would be looking for short least properties to buy, extend and sell at a premium.. thus increasing the demand for short lease and increasign the supply of long lease properties, thus closing the gap. 

merlintess

saajan_12 said:

tomgaiger said:

princeofpounds said:

Why is it not worth it if the valuation for the property with a long lease is below 250k? As you say, you are spending ~227k. Most people spending 227k get 227k worth of property, so who cares if the valuation with the long lease is 250, 285 or 230? You would still be getting a bargain.

Perhaps I'm missing something in your explanation of the numbers involved...

Hi thanks for your reply. I think there needs to be a fair buffer between the £227K and the valuation in order for us to take on the cost/effort/risk of dealing with the whole lease extension process, rather than just finding another property and paying market value. Certianly if the valuation came in at £230, I would think we'd be in a position to renegotiate the asking price since we'd been 'sold' the idea of buying a 285K flat for £227K when in reality that would be demonstrated to be not true by the valuation.

The point seems to be this buffer..
Comparing say a renovated property, there may be a premium in certain markets for a house being turnkey ready vs the hassle of doing the renovations (equally there can be a discount because the buyer doesn't get to chose the interior to their taste). In your case, the hassle is just a paperwork one, and the risk is minimal because you would have a statutory right to extend once the s42 is served. So I'd price that 'buffer' at £5k region, rather than the £22k+ you're thinking. If it was so high, most functioning markets would close this gap as people would be looking for short least properties to buy, extend and sell at a premium.. thus increasing the demand for short lease and increasign the supply of long lease properties, thus closing the gap. 

Hi, thanks for your contribution. Yes you are right, the buffer is the key issue here. Of course we are being told that the lease extension process will be straightforward by the EA and the solicitor who will be facilitating the section 42, but also I'm told there is a very real possibility that the freeholder will dispute the section 42, meaning it will have to go to tribunal, lumbering us with more and more legal fees. It's not difficult to imagine that a 5K or even 10K buffer could be quickly evaporated by this. What would eliminate all of this guesswork is being able to get an agreement from the freeholder on what the cost of extending would be, but as far as I've been told throughout thsi process, that is not a possibility?

eddddy

merlintess said:

Hi, thanks for your contribution. Yes you are right, the buffer is the key issue here. Of course we are being told that the lease extension process will be straightforward by the EA and the solicitor who will be facilitating the section 42, but also I'm told there is a very real possibility that the freeholder will dispute the section 42, meaning it will have to go to tribunal, lumbering us with more and more legal fees. It's not difficult to imagine that a 5K or even 10K buffer could be quickly evaporated by this. What would eliminate all of this guesswork is being able to get an agreement from the freeholder on what the cost of extending would be, but as far as I've been told throughout thsi process, that is not a possibility?

It seems a bit like you've 'half-understood' some of the process. Maybe phone one or two lease extension valuers for fee quotes - they're often happy to explain the process in more detail.


But in overview, the Statutory process works like this (with some example numbers)...

1. You instruct a lease extension valuer - they will normally provide 3 valuations:

• A best case (maybe £28k)
• A most likely case (maybe £35k)
• A worst case (maybe £40k)

2. Your solicitor will serve a section 42 notice, offering £28k

3. The freeholder will get a lease extension valuer - who will probably give them 3 valuations - say £30k, £36k and £42k

4. So the freeholder will respond with a counter offer of £42k

5. Then the valuers negotiate on behalf of their clients and probably agree at around £35k or £36k

The leaseholder's fees for steps 1 to 5 above are likely to be £3k to £4k in total. (The leaseholder has to pay the freeholders costs.)


If the valuers really can't agree on a figure, it goes to tribunal. But that will might cost the leaseholder £5k, and cost the freeholder another £5k. Each party has to cover their own costs.

Neither the freeholder or leaseholder want to throw £5k in fees down the drain - so both sides have an incentive to agree before tribunal.

amylan

Just an additional point to mention. In the current market, I have seen a number of freeholders attempting to delay lease extensions (seeking to move income into the next financial year) despite tribunal risk and indeed exploiting the current tribunal backlog which can end up taking a 1-2 years to complete. Just something to bear in mind when considering your negotiating route and certainly worth looking at their financial year end on companies house: https://find-and-update.company-information.service.gov.uk/

princeofpounds

OP, yes, it's true that fees can take up a few k and the process takes a little time. But I think it's important to understand that this is not like a criminal court case where judges and juries can swing either way - you will get the result at the end of the process. There is almost no procedural risk, and fairly minimal risk around the valuation.

Your view on the value uplift you should be compensated for going through this process just isn't that realistic. If you even achieve the 250k valuation you will have done *exceptionally* well by paying 227k. If you had a 20% equity deposit, for example, that means you would have made almost a 50% return on your equity right away. That's why personally I'm not sure I even believe the 250k number, but if you've actually found that, it's great.

I'm trying to think about how best to convey the issues with your rationale here... it's like you've bought a BMW 3-series for Ford Fiesta prices, and you're thinking about sending it back because you didn't get a Ferrari F50.