Buying flat with short lease - good idea?

Annabee

I am asking on behalf of my friend.   She and her husband are both around 60.   They do not own a property, and are sick of paying high rents, and the lack of autonomy etc you get when renting.   Also worried about the future, as obviously they won't be able to work forever, although currently they have a good income which should continue for several years.

They have some savings, around £50,000 not normally enough to buy anywhere in their area.   They have a clean credit record, but friend believes they won't be able to get a normal mortgage due to age.  There is a probability of inheritance for each of them, and this would be a good amount (hopefully, but obviously it's unpleasant to speculate, and she doesn't talk about it much).

They normally rent a house, but she's seen a flat advertised in a nice local area, for less than £100,000.   They could downsize, put in their savings and would just have to borrow around £30,000 which she thinks she could just get as a personal loan (not secured on the property).   On their current income they could pay this off in about 3 years.  

She thinks it's a possibility, but the flat has been for sale a while, needs new kitchen and bathroom, and has only 58 years remaining on the lease.
What are your opinions, and what are the pitfalls of this?  Any ideas?

AFF8879

Do they have any kids of their own? If not then a short lease flat might actually be ideal for them. You mention they’re likely to receive an inheritance themselves, at 60 years old I assume this will come sooner rather than later - depending on how much that is, it might make me hold on for a bit longer 

Annabee

They have 2 kids, grown up and independent.  Is it not a thing that the lease could be extended (for a price)?   I don't know much about it but said I'd ask on here.

They have been unlucky with dodgy landlords and I think they are just sick of giving money to those people and feel it a waste.  I suppose they could rent something smaller (with a better landlord, hopefully!).  Then they could save up more each month.

macman

Getting a mortgage is not relevant, as no-one will lend on a lease that short. After a 25 year mortgage, it'll have just 33 years left, and the minimum is normally 35 years left on the lease. If in 15-20 years time it needs to be sold on, for whatever reason, only a cash buyer would be interested, at a knockdown price. 

MaryNB

Once they've owned it for 2 years they can go down the statutory extension route. It will be costly since the lease is less than 80 years. It will extend the lease by 90 years and bring the ground rent down to a peppercorn rate 

They could also request an informal statutory extension but this is a riskier option. The freeholder can change the terms of the lease and do things like double the ground rent. The statutory route is a safer option. 

Annabee

No she is not bothered about getting an actual mortgage, I think she realises that.  Just wants somewhere to live that is theirs without paying out a fortune to a landlord monthly.  Like I said, the extra amount they'd need to borrow from somewhere could be paid off by them in about 3 years, especially with no rent to pay out.  So she thought it might be a good idea.

The number of years left on the lease would cover their lifetimes, but she was assuming that it would be possible at some stage to extend the lease, so it could be left to the kids.

Annabee

Other things she has considered are part ownership (can be a rip off apparently, also not sure of eligibility), moving to a much cheaper area (but would cause problems with work), or buying a park home (deteriorates in value).

macman

Yes, they can certainly extend the lease, but as each year passes, the cost of doing so increases. 

Annabee

Any (very rough) idea of how much that might be macman?   The flat is for sale at £90,000 and has been for a few months, so she was hoping to get the price down a bit.  

eddddy

They could buy the property now - and after 2 years they would have the statutory right to extend the lease by an extra 90 years. But it would probably cost £20k to £30k to do that.

However, the resulting increase in the value of the property is likely to be more than £20k to £30k - so they should make a profit by doing it.

Do they understand 'Service Charges'?

As renters, they haven't been liable for any costs of buildings maintenance, buildings repairs or buildings insurance - but they will be liable if they become owners/leaseholders. It's called the 'Service Charge'.

So if the flat is in a building that's in poor condition and needs maintenance or repairs - they could face big bills. Maybe for thousands of pounds.


I'm not sure if a personal loan is a great idea. But with 58 yeas on the lease, I doubt they'd get a retirement mortgage. (Would their children be in a position to give them a loan?)

Annabee

Possibly their kids might be able to lend some (but one of them has just bought their own house, so friend is reluctant to ask).  Or indeed their parents might, as they have plenty of capital.  Why do you think a personal loan is a bad idea?

Or maybe a combination of sources for the money required?