Leasehold renewal for a flat in London

11fernsroad

Hi
We are planning to buy a flat in London.Never bought a flat before and nor a property which is leasehold so far.So complete novice here.
What are the things we should watch out for.
There are one or two really good flats which caught our attention but has lease running out in 10 years.I was told ideally lease should be at least 80 years for it to be saleable at a later date.
Any advices?

Slithery

Will you be needing a mortgage? If so then you won't get one on a flat with only 10 years remaining.
Also the cost to extend may be £100's of thousands.

K_S

@11fernsroad From a mortgage point of the view (important both at purchase and at sale) and restricted to the issue of the lease, the main criteria is lease length. 80+ years will cover almost all mainstream lenders, 70-80 you may still have a few options and below 70 most buyers may struggle to get a mortgage. With 10 years, there's no chance of a mortgage and essentially you're just looking at a 10 year rental, effectively, albeit one where you are wholly responsible for all costs related to the property.

Another issue is ground-rent that double anything less than every 20/21 years (eg: ground rents that double every 10 years).

There are other flat specific issues to keep in mind which I'm sure others will elaborate on. From a mortgage point of view, lender criteria is quite flexible with flats in London compared to other parts of the country, primarily due to lower risk around saleability and demand.

MEM62

11fernsroad said:

Hi
We are planning to buy a flat in London.Never bought a flat before and nor a property which is leasehold so far.So complete novice here.
What are the things we should watch out for.
There are one or two really good flats which caught our attention but has lease running out in 10 years.I was told ideally lease should be at least 80 years for it to be saleable at a later date.
Any advices?

You will not get a mortgage with only 10 years remining on the lease.  To be honest, I can't believe that the seller's are marketing with that short a lease as it effectively restricts their market to cash buyers only.     

eddddy

11fernsroad said:

There are one or two really good flats which caught our attention but has lease running out in 10 years.

A flat with 10 years left on the lease will seem very cheap, but it will cost a fortune to extend the lease.

As an extreme example, here's a flat in Knightsbridge which sold for £550k with just 1 year left on the lease, but it's estimated that it would cost £2.4m to extend the lease. 
https://metro.co.uk/2014/10/02/this-knightsbridge-flats-a-steal-at-500k-or-is-it-4890643/

The general advice is to extend a lease before it drops below 80 years - because the cost escalates after that.




Edit to add...
That Knightsbridge flat was probably a good deal for the buyer at a total price of £3m.

But you have approach it realising you'll need £3m cash.

If you go in with only £550k in cash, and can't raise the other £2.4m, you'd lose the flat after 1 year.

NameUnavailable

I would say a lease with less than 90 years will be more difficult to sell - when a lease drops below 80 years there is 'marriage value' to take into account if you want to extend the lease i.e. it's a lot more expensive. Also, you need to have owned a lease for at least 2 years before you can extend the lease via the formal (preferable) route.

Ground rent within London should be less than £1K per annum as if it ever goes above this it will become an assured tenancy which lenders don't like. Doubling clauses or increases at too regular intervals are also red flags.

Ideally you want a lease with 900 plus years, peppercorn ground rent and even better, a shared freehold.

Also think about service charges - what are they now, is there a sink fund, what work is likely to be required on the building going forward etc. etc.