Buying the Freehold of our Leasehold house - rip off?

mjm3346

Landlord is unlikely to be worried about only getting £6 a year when they will have a property worth over £250,000 in 15 years time

main site

https://www.moneysavingexpert.com/news/2021/01/shake-up-to-make-it-easier-and-cheaper-for-leaseholders-to-buy-t/

https://www.moneysavingexpert.com/mortgages/what-is-a-leasehold/

"If you're a property-hunter, alarm bells should screech if a lease is nearing or below 80 years – don't just accept estate agents' promises of easy extensions.

Here are some general principles about lease lengths:

• RED. Lease of fewer than 80 years – warning, you're in the danger zone. You urgently need to think about extending your lease if it's near to 80 years. At 80 years you might have to pay 'marriage value' (more on that below), while if your lease is under 70 years, mortgage rates may at best increase, and your property will be virtually unmortgageable under 60, so you will struggle to remortgage."

Slithery

amylloyd98 said:

Thanks for all of the replies - i really wasn’t aware of this. So even though we have fully paid off the mortgage on the house, as soon as the lease expires, we no longer own the house, or just the land it sits on?

When the lease expires you no longer own anything. Not the house or the land it sits on. A leasehold is just a long term rental agreement that you pay for upfront.

All your parents have paid for with their mortgage is an agreement to live in the house for 70 years, it never actually belongs to them.

dimbo61

So you need to sort this out NOW

Find a way to borrow the £58,000 from somewhere or lose Mum and Dad,s house in 15 years.

user1977

Not being funny, but if you knew the lease only has 15 years left - what did you think happened at the end?

theoretica

Paying 58k (and legal fees) now for a 280k house in 15 years time seems a good deal to me.  It might be worth talking to a good mortgage broker and investigating the implications of lifetime mortgages.  The big downside they have of potentially growing and eating up the equity in the house doesn't seem to apply in this case - your parents would be more likely to have something in 15 years time if they borrowed against the property than if they didn't.

£60k @ 5% interest for 15 years would add up to £127k leaving them with £130k (+ any house price rise)- which is a whole lot better than 0!

NameUnavailable

Rip off? I'm surprised it's that low to be honest, bite their hands off! Obviously you need to raise the funds but if you can buy it, on the condition that it is then left to you in their will, you will have a far better investment than buying a 'new' property yourself.

The other option is you keep the property for 15 years and prepare to move out when the lease expires because at that point it becomes the freeholders property in full again and they can then sell a new lease (for full market value).

amylloyd98

Thanks all for all of your help - it has been a real eye opener for me (and my parents) and also a (very expensive) lesson learned. I think we will have to raise the funds from somewhere, and treat it as an investment for the long term. 

Really appreciate all of the advice!

sourpuss2021

theoretica said:

Paying 58k (and legal fees) now for a 280k house in 15 years time seems a good deal to me.  It might be worth talking to a good mortgage broker and investigating the implications of lifetime mortgages.  The big downside they have of potentially growing and eating up the equity in the house doesn't seem to apply in this case - your parents would be more likely to have something in 15 years time if they borrowed against the property than if they didn't.

£60k @ 5% interest for 15 years would add up to £127k leaving them with £130k (+ any house price rise)- which is a whole lot better than 0!

Maybe withdrawing funds from a pension would be another option, if either parent has a large enough pension that they would still have enough to fund their retirement.

NameUnavailable

Rip off? I'm surprised it's that low to be honest, bite their hands off! Obviously you need to raise the funds but if you can buy it, on the condition that it is then left to you in their will, you will have a far better investment than buying a 'new' property yourself.

The other option is you keep the property for 15 years and prepare to move out when the lease expires because at that point it becomes the freeholders property in full again and they can then sell a new lease (for full market value).

eddddy

amylloyd98 said:

would this price be negotiable at all?

Everything is negotiable.  You say the freeholder sold a similar freehold for £36k last year, so maybe it's worth making an offer.

The freeholder has made an offer of £58k, you can make a counter offer of £36k (or any other amount) if you like.


Your freeholder has had a valuation done - which you paid for. Normally a valuation report says something like this (I've guessed the numbers) ...

If the freehold valuation goes to a tribunal, we believe that:

• The best case outcome would be a £55k valuation
• The worst case outcome would be a £28k valuation
• The most likely outcome would be a £38k valuation

Therefore, we recommend that you make an initial offer of £58k


So it might be sensible for you to get your own valuation done, so you have the same type of information that your freeholder has. (You'd have to use a different valuer from your freeholder, to avoid a conflict of interest.)