Buying the Freehold of our Leasehold house - rip off?

ILoveSittingDown

mjm3346 said:

amylloyd98 said:

Hello,

So, our family has decided that its time to buy the freehold of our leasehold house that we have lived in 50+ years (yes, i know we should have done this sooner). The lease has around 15 years left. We contacted the landlord who owns the freehold, who is also a solicitor, in regards to buying this, so they arranged for their surveyor to come and value our house. We have not received the valuation, but we did get a letter this morning saying the freehold will cost £58,000!!!! Is this a rip off, or am I incredibly naive?

Based on houses on our road, i believe our house would be valued at no more than £280,000 - and we have also spoken to a solicitor who helped somebody else on our road by their freehold from the same landlord for £36,000 just last year!!!

would this price be negotiable at all? Does anybody have any advice? We really do not have this kind of money, but know we really need to buy the freehold, as leasehold houses are a thing of the past….

As has already been mentioned get legal advice (they may even give you a "ballpark" figure to play with).

But based on a previous thread of yours you now potentially have something to invest your inheritance in, although you have aged badly in 2 years

This thread
"be at the beginning of my 40s"
from 2 years ago
"due to the recent passing of a family member I am set to inherit roughly 100k at 21 years of age."

amylloyd98 said:

Hi everybody,
due to the recent passing of a family member I am set to inherit roughly 100k at 21 years of age. Im currently a full time university student with little savings, this amount of money is quite overwhelming and I’m not quite sure what to do with it. I have differing opinions from my parents who suggest putting the money evenly split into two savings accounts may not be the best move considering the low interest rates right now and maybe investing in a property might be the best move. I just wondered if anybody else had ant suggestions or advice on how to manage and optimise this amount of money. 

Many thanks

She said she would be at the beginning of her 40s in response to a question of where she would be in 15 years time at the end of the lease. 21+2 years ago+15 years = 38

For the purposes of an abstract age description on a forum discussion, 38 is close enough to the beginning of your 40s. Nothing to see here

HampshireH

ILoveSittingDown said:

mjm3346 said:

amylloyd98 said:

Hello,

So, our family has decided that its time to buy the freehold of our leasehold house that we have lived in 50+ years (yes, i know we should have done this sooner). The lease has around 15 years left. We contacted the landlord who owns the freehold, who is also a solicitor, in regards to buying this, so they arranged for their surveyor to come and value our house. We have not received the valuation, but we did get a letter this morning saying the freehold will cost £58,000!!!! Is this a rip off, or am I incredibly naive?

Based on houses on our road, i believe our house would be valued at no more than £280,000 - and we have also spoken to a solicitor who helped somebody else on our road by their freehold from the same landlord for £36,000 just last year!!!

would this price be negotiable at all? Does anybody have any advice? We really do not have this kind of money, but know we really need to buy the freehold, as leasehold houses are a thing of the past….

As has already been mentioned get legal advice (they may even give you a "ballpark" figure to play with).

But based on a previous thread of yours you now potentially have something to invest your inheritance in, although you have aged badly in 2 years

This thread
"be at the beginning of my 40s"
from 2 years ago
"due to the recent passing of a family member I am set to inherit roughly 100k at 21 years of age."

amylloyd98 said:

Hi everybody,
due to the recent passing of a family member I am set to inherit roughly 100k at 21 years of age. Im currently a full time university student with little savings, this amount of money is quite overwhelming and I’m not quite sure what to do with it. I have differing opinions from my parents who suggest putting the money evenly split into two savings accounts may not be the best move considering the low interest rates right now and maybe investing in a property might be the best move. I just wondered if anybody else had ant suggestions or advice on how to manage and optimise this amount of money. 

Many thanks

She said she would be at the beginning of her 40s in response to a question of where she would be in 15 years time at the end of the lease. 21+2 years ago+15 years = 38

For the purposes of an abstract age description on a forum discussion, 38 is close enough to the beginning of your 40s. Nothing to see here

Exactly this.

amylloyd98

She said she would be at the beginning of her 40s in response to a question of where she would be in 15 years time at the end of the lease. 21+2 years ago+15 years = 38

For the purposes of an abstract age description on a forum discussion, 38 is close enough to the beginning of your 40s. Nothing to see here

Exactly this.

Yep - turning 24 in a couple of months so in 15 years time I will be turning 39 in a couple of months - please forgive me for my lack of precision !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


Also, with regards to an inheritance I was due to receive - this is still in probate due to errors on the will/beneficiarys passing away etc - so as of right now, we do not have the money to pay for it. If I had received the inheritance I was due by now, then I probably wouldn't have needed to start this thread!

london21

amylloyd98 said:

Hello,

So, our family has decided that its time to buy the freehold of our leasehold house that we have lived in 50+ years (yes, i know we should have done this sooner). The lease has around 15 years left. We contacted the landlord who owns the freehold, who is also a solicitor, in regards to buying this, so they arranged for their surveyor to come and value our house. We have not received the valuation, but we did get a letter this morning saying the freehold will cost £58,000!!!! Is this a rip off, or am I incredibly naive?

Based on houses on our road, i believe our house would be valued at no more than £280,000 - and we have also spoken to a solicitor who helped somebody else on our road by their freehold from the same landlord for £36,000 just last year!!!

would this price be negotiable at all? Does anybody have any advice? We really do not have this kind of money, but know we really need to buy the freehold, as leasehold houses are a thing of the past….

Because there is only 15 years left on the lease leaves you with not much option.

As the years get lower, the renewal fees are considerably more.

When it get less than 80 years it starts getting expensive.

 

With 15 years left, a mortgage company would not give mortgage for example.

The lease that was done for £36,000 do you know how many years was left on the lease? Likely more years than 15 could have been 60 years left for example. Unless it is like for like, difficult to compare.

 

No harm trying to negotiate the price but could be a yes or no.

also other costs such as valuation fee, solicitors fees etc to take into consideration. 

amylloyd98

london21 said:

Because there is only 15 years left on the lease leaves you with not much option.

As the years get lower, the renewal fees are considerably more.

When it get less than 80 years it starts getting expensive.

 

With 15 years left, a mortgage company would not give mortgage for example.

The lease that was done for £36,000 do you know how many years was left on the lease? Likely more years than 15 could have been 60 years left for example. Unless it is like for like, difficult to compare.

 

No harm trying to negotiate the price but could be a yes or no.

also other costs such as valuation fee, solicitors fees etc to take into consideration. 

Hi,

I believe the lease was like-for-like and also owned by the same person - but I know even just one year later can make a massive difference with regards to the price.

Our valuer went in at £50k, and we have received a counter of £54,500 - which i think we are going to accept

eddddy

amylloyd98 said:

Our valuer went in at £50k, and we have received a counter of £54,500 - which i think we are going to accept

You'll probably also have to pay the freeholder's legal costs.  Before accepting the price, ask the freeholder to quote you a fixed price to cover their legal costs. (As the freeholder is a solicitor, they will probably do all the work themselves, so should be able to quote a fixed price.)

You'll also have to hire your own solicitor - again ask them to quote you a fixed price for the purchase. 

You should use a solicitor who is experienced in leasehold enfranchisement - for example, to make sure the freeholder doesn't try to slip in some unnecessary covenants.  Maybe your valuer has worked with good solicitors in the past, and can recommend one.

GDB2222

eddddy said:

GDB2222 said:

I'll just add this here, in case somebody else comes across this thread.

The cost of the freehold is calculated by valuing the future income stream from the ground rents (almost nothing in this case), plus the value of the reversion. The reversion is based on the value of the property when the lease ends (around £280k according to the op), and this is discounted because the freeholder won't get the property for 15 years.

The discount is based on a notional interest rate of 5-6% a year, compounded for the 15 years.

On a discount rate of 5%, the freehold is worth £135k.
 
On a discount rate of 6%, the freehold is worth £116k.

Overall, I'd be taking the offer the Op has, as several others have said!

I think you've used the wrong valuation method.

It looks like you've used the "Special Valuation Basis" - and you've forgotten to take into account marriage value (because the lease has less than 80 years left).

And you haven't taken account of Tenant's Improvements....

I suspect the house is about 100 years old - so the tenant's improvements might be huge. e.g. Improvements might include Electricity and Running Water in the house. Creating a kitchen and indoor bathroom in the house. Maybe central heating. Maybe even an extension.)


But in any case, I think you should be using the "Original Valuation Basis" - that makes the cost of the freehold closer to £49k.



As I said previously, the freeholder got a valuation and then asked for £58k.

If the valuation came back at £116k, why would the freeholder only ask for £58k?

See: https://www.lease-advice.org/advice-guide/leasehold-houses-valuation/

Thank you. I stand corrected.  It just goes to show that people shouldn't rely on advice on these forums. At least, not on important technical matters, such as lease extensions.