Leasehold property in London - really need advice as a scared first time buyer

tryingmybest62

Hi there. I’m 26 years old and am in the very lucky position of being able to buy a flat in London with my partner. 

We looked at lots of places and only found one we liked enough to put an offer on - luckily it was accepted. I really like the flat and it has everything we need but I am concerned that it’s a newer development (built in 2016/2017) and as such has associated ground rents and service charges. There is a long time left on the lease (>240 years) It is not an AST so we’ve had no issue getting a mortgage etc and the searches have all been fine - there are no major red flags. But there is so much information out there about how awful leaseholds are etc that it is making me panic massively. It also doesn’t come with parking which isn’t an immediate issue but could be one in future. We also have the EWS1 confirming no cladding issues and no remedial work is required. 

All the information online seems so negative but the reality of London is that the majority of properties are leasehold so this is likely to be the reality for anywhere we look at. However, my main worry is about not being able to sell I.e. in 5 years or so. I’d be grateful for any advice on this recognising how different the London property market is to the rest of the UK. 

DullGreyGuy

We are now leasehold, our service charge is circa £2,500/year

Last place was share of freehold, that service charge was £8,500/year

Both 2 bed, 100m2 flats 150m apart on the same road. The difference was the former place is 40 years old and now needs a lot of work on the roof, wooden windows and lifts whereas the current place is 15 years old and so maintenance is fairly light. The quote for the scaffolding alone was over £1m 

If work needs doing it needs doing, irrespective of if its leasehold or share of freehold. Sure if you could afford a freehold house you could technically allow it to fall down around you if you couldn't afford the roof repairs etc but thats unlikely to be the best long term strategy. 

eddddy

In simple terms...

• There will be a freeholder and/or management company - who insure the building, maintain the building and communal areas etc

• As a flat owner, you will have to contribute a percentage of those costs

There are some freeholders/ management companies that are good, and some that are bad.

(Just like there are some plumbers, car repairers, restaurants, etc that are good, and some that are bad.)


A bad freeholder /mgmt co might do one or more of the following...

• Fail to keep the building in good condition
• Overcharge for the work they arrange
• Do work which may not be necessary, and charge you for it
• etc

A good freeholder /mgmt co won't do those things

And...

• If somebody has a bad freeholder /mgmt co they often tend to shout about it on the internet

• If somebody has a good freeholder /mgmt co, they often tend to just get on with their life - and not shout about it on the internet.

So you might not get a balanced view by reading stories on the internet.

Perhaps you should research the specific freeholder/mgmt co for the flat you have offered on. See what their reputation is.


And sometimes the flat owners take over responsibility for managing the building - either using their "Right to Manage" or by buying the freehold (making it a shared freehold)


It's also possible for the freehold to be sold to somebody else - meaning you could have a new Freeholder/mgmt co - who might be better or worse than the previous one.
 

Section62

tryingmybest62 said:

We looked at lots of places and only found one we liked enough to put an offer on - luckily it was accepted. I really like the flat and it has everything we need but I am concerned that it’s a newer development (built in 2016/2017) and as such has associated ground rents and service charges. There is a long time left on the lease (>240 years) It is not an AST so we’ve had no issue getting a mortgage etc and the searches have all been fine - there are no major red flags. But there is so much information out there about how awful leaseholds are etc that it is making me panic massively. It also doesn’t come with parking which isn’t an immediate issue but could be one in future. We also have the EWS1 confirming no cladding issues and no remedial work is required. 

...

Of all of those the lack of parking would be the one which kept me awake at night.

The 'stuff' about awful leaseholds is largely a media/political thing, though its effect on people's willingness to buy leasehold shouldn't be ignored.  But there is so much leasehold in London that any genuine problem is ultimately going to need fixing by the government (in the same way the 'cladding' issue had to be fixed) because the government cannot afford to have a significant percentage of (London) property unsellable.  Unless there's a high chance of you needing to sell up to buy elsewhere in the near future then you could make a plan to ride out any short-term issues.

The lack of parking is something you will probably struggle to fix.  Private motor vehicle ownership in London is unwanted by TPTB, and via every policy channel available for the last 25 years or so the London governance system has tried to make it harder to own and use a private vehicle.  Building new homes in London without making parking available has been encouraged, and measures (such as CPZ's) put in place to stop residents circumventing the controls applied through the planning process.  If your circumstances change sooner than you think and you find you need to own a car, then unless you can find a solution to the parking issue you'll be stuck.  If the development has some parking provision, just none specifically allocated to your property, then read all your paperwork very carefully to find out what chance you have of securing a space if you need one.

FreeBear

Section62 said:

tryingmybest62 said:

We looked at lots of places and only found one we liked enough to put an offer on - luckily it was accepted. I really like the flat and it has everything we need but I am concerned that it’s a newer development (built in 2016/2017) and as such has associated ground rents and service charges. There is a long time left on the lease (>240 years) It is not an AST so we’ve had no issue getting a mortgage etc and the searches have all been fine - there are no major red flags. But there is so much information out there about how awful leaseholds are etc that it is making me panic massively. It also doesn’t come with parking which isn’t an immediate issue but could be one in future. We also have the EWS1 confirming no cladding issues and no remedial work is required. 

...

Of all of those the lack of parking would be the one which kept me awake at night.

 Building new homes in London without making parking available has been encouraged, and measures (such as CPZ's) put in place to stop residents circumventing the controls applied through the planning process.  If your circumstances change sooner than you think and you find you need to own a car, then unless you can find a solution to the parking issue you'll be stuck.

Not in London, and although I have parking space for several cars, I've not really had need for one. Using public transport is a much cheaper way of getting in to town when compared to the cost of car parks. For the odd occasion when I do need a car, a rental is not that expensive. The alternative is a car club, but I don't know how costs compare.

DullGreyGuy

FreeBear said:

Section62 said:

tryingmybest62 said:

We looked at lots of places and only found one we liked enough to put an offer on - luckily it was accepted. I really like the flat and it has everything we need but I am concerned that it’s a newer development (built in 2016/2017) and as such has associated ground rents and service charges. There is a long time left on the lease (>240 years) It is not an AST so we’ve had no issue getting a mortgage etc and the searches have all been fine - there are no major red flags. But there is so much information out there about how awful leaseholds are etc that it is making me panic massively. It also doesn’t come with parking which isn’t an immediate issue but could be one in future. We also have the EWS1 confirming no cladding issues and no remedial work is required. 

...

Of all of those the lack of parking would be the one which kept me awake at night.

 Building new homes in London without making parking available has been encouraged, and measures (such as CPZ's) put in place to stop residents circumventing the controls applied through the planning process.  If your circumstances change sooner than you think and you find you need to own a car, then unless you can find a solution to the parking issue you'll be stuck.

Not in London, and although I have parking space for several cars, I've not really had need for one. Using public transport is a much cheaper way of getting in to town when compared to the cost of car parks. For the odd occasion when I do need a car, a rental is not that expensive. The alternative is a car club, but I don't know how costs compare.

Depends which borough... out in zone 5 where we used to live then public transport is good compared to much of the UK but moving around by it is very slow compared to a car often involving multiple changes. To get to our local Chinese supermarket was a walk, bus, tram, a second bus and a walk for a total of 1hr15 whereas a car was 25 minutes. Youre also having to take bags of shopping on the same. 

Now living in zone 2 and very close to zone 1 we got rid of the car because here public transport it much better, everything is closer, traffic is terrible and cost of parking etc when not at home. That said most our neighbours do have cars but use them for sub 3 mile drives.  The immediate neighbour seems to have a calling for beer and snacks at the same time as me as we often come out at the same time, I walk to the coop whereas they drive. Almost without fail will beat them there each time.

Section62

FreeBear said:

Section62 said:

tryingmybest62 said:

We looked at lots of places and only found one we liked enough to put an offer on - luckily it was accepted. I really like the flat and it has everything we need but I am concerned that it’s a newer development (built in 2016/2017) and as such has associated ground rents and service charges. There is a long time left on the lease (>240 years) It is not an AST so we’ve had no issue getting a mortgage etc and the searches have all been fine - there are no major red flags. But there is so much information out there about how awful leaseholds are etc that it is making me panic massively. It also doesn’t come with parking which isn’t an immediate issue but could be one in future. We also have the EWS1 confirming no cladding issues and no remedial work is required. 

...

Of all of those the lack of parking would be the one which kept me awake at night.

 Building new homes in London without making parking available has been encouraged, and measures (such as CPZ's) put in place to stop residents circumventing the controls applied through the planning process.  If your circumstances change sooner than you think and you find you need to own a car, then unless you can find a solution to the parking issue you'll be stuck.

Not in London, and although I have parking space for several cars, I've not really had need for one. Using public transport is a much cheaper way of getting in to town when compared to the cost of car parks. For the odd occasion when I do need a car, a rental is not that expensive. The alternative is a car club, but I don't know how costs compare.

Yes, I'm not suggesting a car is essential, just going off the OP's comment that parking "...isn’t an immediate issue but could be one in future."

If the plan to get a car in the future (e.g. work, lifestyle reasons) then the time to think about parking is now.

I fully agree with DullGreyGuy's post as it echoes my own experience.  Where you are in London (and what you need to do) makes a huge difference between the different ways of getting around.  Car clubs can be useful, but rentals are problematic if you live somewhere with zero parking and you need to load/unload at home.

tryingmybest62

Thank you for all these comments. Helpful things to think about! The flat block actually changed management recently as the leaseholders agreed the service charge was getting too high and the current management have brought it down quite a lot already. Unfortunately there aren’t many reviews about the management - parallel property management - but I’m hoping that’s an indicator they aren’t awful. The previous management had some quite bad reviews. 

We made our offer on the basis of completing ahead of the stamp duty increases which now looks unlikely so we are thinking about reducing our offer. We’ll need to take this into account alongside the considerations on parking etc. 

NameUnavailable

How much is the ground rent now and does it increase over time (if so by what method and how often?).

The service charge only usually covers day to day stuff (insurance, communal areas lighting/cleaning etc). Anything major will be billed as and when (unless there's an adequate sinking fund). So consider what could need doing in the coming years - is it painted outside? is there a lift? How much scaffolding might be required for any routine works like guttering cleaning/repairs etc.

If you think you might need a parking space at some piont check if you are able to get a residents permit. Some properties are not entitled to resident parking permits, or there might be a very long waiting list. Also consider where visitors or tradesmen might park when you have them.

tryingmybest62

The ground rent is £350 and doubles every 25 years. Most mortgage lenders are concerned if ground rents double more frequently than this but it is on my mind that even doubling every 25 years is still quite frequent and some lenders (not the big ones though) wouldn’t lend on this basis. As I say we didn’t struggle to get a mortgage but it remains probably my biggest concern with the property. 

The property does have a reasonable reserve / sinking fund. But there is a lift etc which I know can add quite a lot of costs. 

The property is in zone 2 which is amazing as we cycle a lot and it’s very convenient so the car isn’t a major issue but we are thinking about how problematic it might be when family and friends visit or when work needs to be done. 

NameUnavailable

Whilst the ground rent means it isn't an AST at the moment at some point in the future it could be (unless the Govt. do something about the laws).

Leasehold reforms are taking place and it's possible that new flats will all be commonhold in the future. This will in time make flats with shorter leases and high ground rents less desirable. Your flat has a long enough lease but you would need to extend it to get rid of the ground rent and as things stand that will be quite costly with the doubling rent clause your lease has.

Things to consider.....