Should I buy a flat with a short lease if buying it cash?

SandyN21

Apologises if this post is rambling:

I'm 63, took voluntary redundancy last October (worked at the same company for 45 years), divorced last December and still living in the house with ex-husband. We've had the house for 27 years. It is mortgage free and we have an equal share of 'tenants in common’ ownership. It was put on the market end of August and we accepted a full asking price offer yesterday.

Once sold, I've decided to rent for 1 year to have a hard think as to where I want to live. I'm in North London and grew up here but have thoughts of moving to Apsley in Hertfordshire. I've spent several weekends and day visits there to get a feel of the area (taking friends/family for their thoughts). 

Having only purchased houses I would like a 2-bed flat that I can just lock up and leave when holidays get easier to arrange and enjoy...also I don't want a garden to maintain. I'll be buying it cash (£350k max) so was wondering should I also consider property with a short lease...say between 60 to 85 years and how will this be factored into how this short lease will affect my son who is 42 or grandchildren (7 and 16) if this flat is part of their inheritance.

Also, has anyone purchased a flat specifically for the 'over 55' age group and have they regretted it?

Thanks 

AdrianC

Are you buying it primarily for your home, or primarily for "an inheritance" that may never happen? Remember, it may need to be sold to cover care costs.

Yes, buying a short-lease property can give access to places that you wouldn't otherwise be able to afford. The lease will continue to tick downwards, though, and the marriage value on any renewal will increase rapidly as it does so.
So, if you can buy and afford to renew the lease in fairly short order, then there may be bargains to be had.
If you're stretching affordability to buy with no thought of the lease extension, then it's doable but do so in the full knowledge of what will ensue. I'd suggest only doing so if you're absolutely certain that it's the right place for you and you can't find anywhere else that suits.

£350k should be more than enough to give a good choice of places that tick your boxes just about anywhere around the various outer Hemel suburbs - or, if your heart is set on Apsley, then you should have a reasonable nest-egg left over...

GDB2222

If you’re 63, your life expectancy is around  30 years.  So, if you buy a 60 year lease, your heirs will inherit a 30 year one, which will cost a fair bit to extend. 

You sound like you’re being very sensible and not rushing decisions at an emotionally difficult time.

Watch out for very high service charges on some retirement properties. Also, restrictions on parking, etc. 

bouicca21

When I split up with my ex I had a similar sum to play with.  Also thought of moving out of London but in the end bought a flat in another London ‘village’ so that I could still be near old friends.   That sort of price is just about doable in London and being a cash buyer will give you an edge.  My flat had a 47 year lease, it cost the previous vendor £20,000 plus fees to extend it by 90 years via the informal route.  

Norman_Castle

I'd only buy a short lease if extending it was an option. Factor in the cost of extending a lease when working out what you can afford.

eddddy

SandyN21 said:

Also, has anyone purchased a flat specifically for the 'over 55' age group and have they regretted it?

These types of flats tend to have very different leases from other flats.

For example, the managing agent/agent might be responsible for all the following:

• Maintaining, repairing and updating the electrics and plumbing in the flat
• Fixing leaking taps, blocked sinks, blown fuses in the flat
• Maintaining the storage heaters in the flat and replacing them when required
• Providing 24/7 emergency cover through panic buttons and intercoms
• Periodic warden visits

All that might be included in the service charge, so the service charge might be very high - and there might be 'event fees' or charges on top. But the benefit is that most problems with the flat can be dealt with by a single phone call to the management co, rather than having to find your own tradespeople etc.

But even so - there are some management cos/freeholders who have reputations for overcharging.

And... because (like you) most people buy these properties for cash, many don't bother getting a proper valuation - and they hugely overpay. Then their family complain that they have to sell it for much less than it was purchased for.

princeofpounds

With those specific retirement properties, they can also be awkward to sell on; sometimes you are forced to give first option or marketing rights to the management company. On the other hand, there are some older buildings/developments where it pretty much is an age restriction and otherwise just like a normal flat, before the business model became so commercialised.

Personally I wouldn't totally count them out if an older relative really thought it was the nicest place to live and the management terms weren't too bad. The community aspect has a value and maximising inheritance is not the only objective. But they wouldn't be a focus of my search.

As for buying a short lease - if you're buying cash, there's no reason not to consider it as long as you know what you're getting into and have a plan about how you want to deal with it. As leases get shorter, the value of them deteriorates. When they get below 80 years, the law then takes 'marriage value' into account - i.e. they recognise the idea that the freeholder might legitimately expect to get the building back at the end of the lease. There is a bit of a step change down in value and then the pace of deterioration accelerates as the lease gets shorter.  This becomes intuitive when you think that when changing from a 79 year lease to a 78 year lease your life doesn't change very much, but changing from a 2 year lease to a 1 year lease means you've already used up half the value of the accommodation! 

So if people are selling 'short' lease properties, they need to discount them compared to a long lease property, to account for the fact that they can only sell to cash buyers, to account for the value that would be required to extend the lease, and to account for the hassle and potential fees involved in extending the lease.

So you can get a bit of a bargain potentially (nothing too excessive, as cash buyers looking for bargains aren't that rare). The question is how you enjoy the extra value. You can either buy a great place that you couldn't afford with a long lease, but then you won't be able to extend the lease, and the value ticks down as you 'consume' it through your lifestyle; the inheritance you leave will be smaller. Or, you buy a place where you can afford to extend as well, and then you may benefit from buying it a few k cheaper but otherwise your life doesn't look that different and you leave a fully-valued property as your inheritance.

So yes, if I were you I would consider short lease properties, but only if you have a clear plan about what to do with them with regards to one of these two approaches. We can talk specifics about valuation another time perhaps. As well as understanding if the pricing is reasonable, you need to make sure the property is actually eligible for a lease extension (most are, but some aren't - shared ownership (sometimes), properties mixed in with commercial space). You'll also need to own it for two years to start the process, unless the current owner can start it off (with a Section 42 notice - lawyers should be used to this) and assign the extension process to you.

cattie

I'd not buy a property on a development solely for the over 55's as they can be very difficult to sell on. You need to consider that when you depart this life that it could take maybe a year or more for your beneficiaries to find a buyer for the flat but still have to be paying out the service & ground rent charges.  

A flat with a short lease could prove to be very costly for your beneficiaries too, so I'd avoid that seeing as you do have relatives to consider.

A better idea would be to see if you can find either a 2 bed flat with a long lease, or one that has share of freehold, which is the type of flat I bought when downsizing a few years ago. Like you I didn't want the bother of having to sort out maintenance etc. myself & we do have lovely grounds which are very well looked after by gardeners, so no effort required for any of us.

eddddy

cattie said:

I'd not buy a property on a development solely for the over 55's as they can be very difficult to sell on. You need to consider that when you depart this life that it could take maybe a year or more for your beneficiaries to find a buyer for the flat but still have to be paying out the service & ground rent charges.  

 To be fair - if a property doesn't sell, it's because it's overpriced.  (That includes being priced to reflect the high service charges.)

As an example, I recently saw 2 identical flats in the same block of a retirement development..

• One was priced at £160k
• The other was priced at £220k

The one priced at £160k sold within a couple of weeks, the one priced at £220k has been unsold for months and will probably take a year or two to sell at £220k (to somebody who pays cash, and doesn't get a valuation).

• In a few years time, the £160k flat might be put on the market again at £180k, it will sell quickly - the beneficiaries will be pleased with the £20k increase in value.

• In a few years time, the identical £220k flat might be put on the market again at £210k (because the beneficiaries can only stomach a £10k loss), it will take a year to sell. The problem is, it was never worth £220k in the first place.

davidmcn

eddddy said:

cattie said:

I'd not buy a property on a development solely for the over 55's as they can be very difficult to sell on. You need to consider that when you depart this life that it could take maybe a year or more for your beneficiaries to find a buyer for the flat but still have to be paying out the service & ground rent charges.

To be fair - if a property doesn't sell, it's because it's overpriced.

...and/or because there simply aren't any buyers out there. How many people will actually want to bother with a second-hand retirement flat with an even shorter lease, at any price?

ODEN33

Having only purchased houses I would like a 2-bed flat that I can just lock up and leave when holidays get easier to arrange and enjoy...also I don't want a garden to maintain. I'll be buying it cash (£350k max) so was wondering should I also consider property with a short lease...say between 60 to 85

You can buy this  2-bed flat for 230k, 15mins to heathrow (fly all over the world in mins. Lease is 119. No garden to worry about and still have 120k change.

https://www.onthemarket.com/details/9596591/

Stay away from retirement flat.