Buying a house in a "creative" way

tostaky

Hi, We live in a rented house that the landlord has recently valued at £1.6million. 
We can only afford £1.2. 
Would it be possible say to buy the leasehold for £1.2 and then pay some ground rent say £1000 a month until the landlady dies or for a set period - and at the end of that period, the freehold is transferred to us?
Do you think that is legally possible? What would the lender say?
Thank you!!

user1977

You do know you've asked us the same question recently?
https://forums.moneysavingexpert.com/discussion/6253731/non-standard-way-of-buying-a-house

tostaky

Kind of... I have not asked that particular question... I think it is a good idea, the leasehold/freehold thing. I just want to know if this is something do-able.

moneysavinghero

Why would the LL want to gift you £400,000? Paying it back at £12,000 would take 33 years to get her money back. 
Or she could sell for £1.6m and put that £400,000 into the stock market and get £28,000 per year (based on long term stock market returns of 7%pa). Why take £12,000 from you when she could get £28,000?

If you can afford £1.2m then you need to be looking at properties around that value. Not like you are going to be looking at hovels.

[Deleted User]

But if you bought the leasehold, you'd need to pay some amount of service charge and ground rent to the freeholder anyway.

This couldn't count towards the purchase of the freehold at some later date, any more than could your prior payment of rent.

Finally, the freehold in itself wouldn't be worth anything like as much as the £300k+ that you'd need.

Hebblethwaite

"...until the landlady dies..."

Not sinister at all 

user1977

Poster_586329 said:

Finally the freehold in itself wouldn't be worth anything like as much as the £300k+ that you'd need.

Well, it could be - in theory you could set up a lease of a sufficiently short term / high rent that it's worth only £1.2m and the reversionary interest is worth £400k (maybe somebody else could do the sums for that). But I strongly suspect it would lead to an unmortgageable leasehold interest.

[Deleted User]

user1977 said:

Poster_586329 said:

Finally the freehold in itself wouldn't be worth anything like as much as the £300k+ that you'd need.

Well, it could be - in theory you could set up a lease of a sufficiently short term / high rent that it's worth only £1.2m and the reversionary interest is worth £400k (maybe somebody else could do the sums for that). But I strongly suspect it would lead to an unmortgageable leasehold interest.

Yes the thought did cross my mind that a short lease of say 50 years might be one way of putting the property within OP's reach.

But from how OP describes the vendor - recently widowed, not willing or able to renovate the property and keen to quickly be shot of it - this sounds like it would be an absolute non-starter.

AdrianC

user1977 said:

Poster_586329 said:

Finally the freehold in itself wouldn't be worth anything like as much as the £300k+ that you'd need.

Well, it could be - in theory you could set up a lease of a sufficiently short term / high rent that it's worth only £1.2m and the reversionary interest is worth £400k (maybe somebody else could do the sums for that). But I strongly suspect it would lead to an unmortgageable leasehold interest.

Plus, of course, the legal costs.

eddddy

tostaky said:

Hi, We live in a rented house that the landlord has recently valued at £1.6million. 
We can only afford £1.2. 
Would it be possible say to buy the leasehold for £1.2 and then pay some ground rent say £1000 a month until the landlady dies or for a set period - and at the end of that period, the freehold is transferred to us?
Do you think that is legally possible? What would the lender say?
Thank you!!

I guess you could potentially get a solicitor to encapsulate what you say into a contract. 

But a mortgage lender is very unlikely to lend on a leasehold property with a ground rent of £12k per year.  (Not to mention that the lender would take into account your £1k per month ground rent payment when assessing your affordability, and might reduce the amount they'll lend you accordingly.)

Plus many other issues, like... what if your circumstances change and you need to sell sooner than expected. Would anyone buy a property with a £12k per year ground rent?

Plus your solicitor also represents your mortgage lender. And what you're talking about is essentially trying to hide a £400k loan from your mortgage lender. I suspect your solicitor will insist on telling your mortgage lender about the scheme.



Perhaps a cleaner option would be to buy the leasehold interest for £1.2m now, and exchange contracts now for the purchase of the freehold in, say, 8 years time for £400k (or whatever),  and save-up the purchase price by putting money into a savings account each month - instead of paying an inflated ground rent.

(But the freeholder would still need to agree to this convoluted plan. I suspect they might prefer the simpler option of selling for £1.6m to somebody who can raise the cash now, rather than years down the track.)

tostaky

Thanks @Eddddy My hiusband is going to speak to a broker/friend and to a property lawyer. Then if we think it is workable, we will make an offer.... Nothing to lose to try!