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Advice needed to finance flat lease extension

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.
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Comments

  • eddddy
    eddddy Posts: 17,769 Forumite
    Part of the Furniture 10,000 Posts Name Dropper

    I'm not sure how much you know about lease extensions already.

    Essentially, there are 2 routes...

    1. Informal - you negotiate the price and terms with the freeholder
    2. 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".



  • SarahB16
    SarahB16 Posts: 379 Forumite
    100 Posts Second Anniversary Name Dropper
    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.  
  • eddddy
    eddddy Posts: 17,769 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 23 July 2022 at 9:25PM
    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

  • NameUnavailable
    NameUnavailable Posts: 3,030 Forumite
    1,000 Posts Fourth Anniversary Name Dropper
    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!
  • SDLT_Geek
    SDLT_Geek Posts: 2,842 Forumite
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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.
    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
    bouicca21 Posts: 6,670 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    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?
  • deddajay
    deddajay Posts: 20 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    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.
    I didn't realise that, thanks. That's something else to consider. I already know that I will be liable for capital gains tax when I sell the rented property.

    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?
    Unfortunately not. Several very small pensions kicked in at 60, and I have another couple which will kick in next year plus the state pension, none of which will give me that sort of money. Both mine and hubby's careers took a nose dive 19 years ago when he had a brain injury. He hasn't worked since and I had to change direction to enable me to be a carer and work. It's been a struggle, but we are debt free with savings but need to find a way to make what we have last as long as possible, hence the move to a cheaper area to free up capital. It's beginning to look as though any move will end up costing us quite a lot, but we need to move away from the town centre to somewhere quieter for our sanity and health now. Town centres are for young people to enjoy living in, not oldies like us. We only intended to stay here a couple of years, but life got in the way.
  • K_S
    K_S Posts: 6,869 Forumite
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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?
    @deddajay Limited to the question of how to finance the lease extension - unless I'm missing something obvious, the most straightforward way would be to do a capital-raise remortgage (it's called a remortgage even if it's currently mortgage free) on your long standing rental property. As long as you have some minimal income to sustain yourself and can evidence the rental income, it should be fairly straightforward and quick.

    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.

  • deddajay
    deddajay Posts: 20 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    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!
    An informal extension will not be an option with our freeholder. One of our neighbours has already done that and let's just say the freeholder was less than conventional in how he wanted payment, which our neighbours rejected. 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.

    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.
  • eddddy
    eddddy Posts: 17,769 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 24 July 2022 at 11:21AM
    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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