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Advice needed to finance flat lease extension

deddajay
Posts: 20 Forumite


I've lived in my flat for 20 years, and now wish to sell up and move to a cheaper part of the country. I was hoping to fund the purchase of a new home from the flat proceeds, but now find that this will be difficult because my lease has dropped to 65 years. I am now in a dilemma as to how to finance the lease extension, which is likely to cost in the region of £40K. My fixed rate mortgage ends in October, leaving a small amount of approx £8K still to pay, which I had intended to pay off in full from savings. If I have to pay for the lease extension as well this will completely clean out my savings and leave me with nothing to fall back on.
I do have another property, freehold and mortgage free, which is currently rented, and I was hoping to keep this as I have a long time tenant in situ who pays a year in advance every April so is fully paid up until March next year.
Can anyone suggest my best option to fund the lease extension? Would taking a secured loan against my rental property be the best option, or see if my current mortgage provider will offer me a second mortgage? I am due to retire next year, so my age may be against this even though I intend to continue working part time after retirement. Are there any other options for financing a lease extension?
Or should I just take the hit and sell my rental property to fund my new home and rent out my existing flat, and wait it out until the lease laws change?
Any advice would be much appreciated as the more I think about this the more confused I'm becoming.
Many thanks.
I do have another property, freehold and mortgage free, which is currently rented, and I was hoping to keep this as I have a long time tenant in situ who pays a year in advance every April so is fully paid up until March next year.
Can anyone suggest my best option to fund the lease extension? Would taking a secured loan against my rental property be the best option, or see if my current mortgage provider will offer me a second mortgage? I am due to retire next year, so my age may be against this even though I intend to continue working part time after retirement. Are there any other options for financing a lease extension?
Or should I just take the hit and sell my rental property to fund my new home and rent out my existing flat, and wait it out until the lease laws change?
Any advice would be much appreciated as the more I think about this the more confused I'm becoming.
Many thanks.
0
Comments
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I'm not sure how much you know about lease extensions already.
Essentially, there are 2 routes...- Informal - you negotiate the price and terms with the freeholder
- Statutory - you follow a precisely defined legal process
Here's some more info: https://www.lease-advice.org/article/lease-extension-of-leasehold-flats-the-two-routes/
If you take the informal route - you might be able to sell the flat with a "lease extension on completion". That way you don't need to raise any finance. When the flat sells, £40k of the proceeds would go to the freeholder, and the rest on the proceeds goes to you.
But the freeholder would have to cooperate to make that happen (and some freeholders will expect to be paid an extra large premium for make it happen).
Alternatively, the statutory route might take between 6 months and 18 months - and you can't really offer a "lease extension on completion".
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I thought leases on homes were due to come to an end. I'm sure this is relevant in your circumstances so please do read the links below:
Leasehold Reform (Ground Rent) Act 2022 - GOV.UK (www.gov.uk)
Government reforms make it easier and cheaper for leaseholders to buy their homes - GOV.UK (www.gov.uk)
It may be that you do not need to pay that much.1 -
SarahB16 said:I thought leases on homes were due to come to an end. I'm sure this is relevant in your circumstances so please do read the links below:
New houses must (almost always) be sold freehold. Flats will continue to be sold leasehold.
@deddajay is talking about buying an existing leasehold flat
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You could also start the formal lease extension process and then sell the flat as it, but the new buyer will benefit from being able to extend the lease (at a price of course) but without having to wait 2 years (you can't extend formally unless you have lived in the flat for 2 years or more).You will of course be selling at a lower price to allow for the cost of the lease extension, probably to a cash buyer.If you opted for an informal extension watch out for the freeholder slapping on an increased ground rent, which could also then make the flat difficult to sell!2
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deddajay said:I've lived in my flat for 20 years, and now wish to sell up and move to a cheaper part of the country. I was hoping to fund the purchase of a new home from the flat proceeds, but now find that this will be difficult because my lease has dropped to 65 years. I am now in a dilemma as to how to finance the lease extension, which is likely to cost in the region of £40K. My fixed rate mortgage ends in October, leaving a small amount of approx £8K still to pay, which I had intended to pay off in full from savings. If I have to pay for the lease extension as well this will completely clean out my savings and leave me with nothing to fall back on.
I do have another property, freehold and mortgage free, which is currently rented, and I was hoping to keep this as I have a long time tenant in situ who pays a year in advance every April so is fully paid up until March next year.
Can anyone suggest my best option to fund the lease extension? Would taking a secured loan against my rental property be the best option, or see if my current mortgage provider will offer me a second mortgage? I am due to retire next year, so my age may be against this even though I intend to continue working part time after retirement. Are there any other options for financing a lease extension?
Or should I just take the hit and sell my rental property to fund my new home and rent out my existing flat, and wait it out until the lease laws change?
Any advice would be much appreciated as the more I think about this the more confused I'm becoming.
Many thanks.1 -
OP, if you are retiring next year are you likely to get a lump sum as part of your pension? Would that be enough to pay for the lease extension?1
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SDLT_Geek said:If you chose the option of selling the rented property and retaining your flat, then you would have to budget for the extra stamp duty on buying your new home. If you are buying your new home in England, that would be an extra 3% stamp duty land tax.bouicca21 said:OP, if you are retiring next year are you likely to get a lump sum as part of your pension? Would that be enough to pay for the lease extension?
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deddajay said:I've lived in my flat for 20 years, and now wish to sell up and move to a cheaper part of the country. I was hoping to fund the purchase of a new home from the flat proceeds, but now find that this will be difficult because my lease has dropped to 65 years. I am now in a dilemma as to how to finance the lease extension, which is likely to cost in the region of £40K. My fixed rate mortgage ends in October, leaving a small amount of approx £8K still to pay, which I had intended to pay off in full from savings. If I have to pay for the lease extension as well this will completely clean out my savings and leave me with nothing to fall back on.
I do have another property, freehold and mortgage free, which is currently rented, and I was hoping to keep this as I have a long time tenant in situ who pays a year in advance every April so is fully paid up until March next year.
Can anyone suggest my best option to fund the lease extension? Would taking a secured loan against my rental property be the best option, or see if my current mortgage provider will offer me a second mortgage? I am due to retire next year, so my age may be against this even though I intend to continue working part time after retirement. Are there any other options for financing a lease extension?
I am a Mortgage Adviser - You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
PLEASE DO NOT SEND PMs asking for one-to-one-advice, or representation.
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NameUnavailable said:You could also start the formal lease extension process and then sell the flat as it, but the new buyer will benefit from being able to extend the lease (at a price of course) but without having to wait 2 years (you can't extend formally unless you have lived in the flat for 2 years or more).You will of course be selling at a lower price to allow for the cost of the lease extension, probably to a cash buyer.If you opted for an informal extension watch out for the freeholder slapping on an increased ground rent, which could also then make the flat difficult to sell!
A cash buyer may be an option, and two of our four flats are already owned by absent landlords who I've already approached to see if their leases need to be extended, as it may be cheaper to do it together, but I'm waiting to hear back. They may already have extended. I would be open to an offer from either one of them to buy my place.
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deddajay said:
Our estate agent has already advised we start the process even if it's not completed at the time of sale as I understand that this can all be done just prior to exchange of contracts. I don't fully understand how this works, so will be going over this again with him. Just need to work out the best way to fund it.
Based on what you say - I'm not sure if your estate agent understands how statutory lease extensions work.
The estate agent has nothing to lose by telling you to start the statutory lease extension process, but you could potentially lose £2k to £4 in fees, if it doesn't work out.
It's impossible to predict how long the statutory process will take - it could be anytime between about 6 months and 18 months. And everything has to be done within strict time windows.
I think you might find it difficult to find a buyer who is prepared to be that flexible.
For example, the buyer's mortgage offer will usually last 6 months - so it will be difficult for a buyer to wait 18 months.
And if the buyer drops out, you either have to pay the £40k and start looking for another buyer....
or withdraw from the lease extension process and lose £2k to £4k in fees.
And then you're barred from starting the process again for 1 year.
Edit to add...
Rather than talking to the estate agent about this, it might be better to talk to a specialist lease extension solicitor or a RICS lease extension valuer about your options.
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