Future sale of property with 57 year lease

JazF

I have just discovered that my parent’s bungalow is leasehold with only 57 years remaining. At the time of purchase, in 1986, they couldn’t afford and didn’t consider buying the freehold. 

As they are both in their late 80’s now when they pass away the time will come when a sale will have to be made.

How would the short lease be viewed in the property market? Would it be  beneficial to extend the lease or buy the freehold now or when the time to sell comes, which may be several years yet?
I can only imagine the cost will be significant. 

eddddy

With a house - a statutory lease extension would add 50 years to the lease.

The lease extension would be free (apart from legal fees), but those extra 50 years would have a "market ground rent" - which might make the ground rent very expensive, and I suspect the high ground rent would make the house unmortgageable.  (I'm not sure that I would want to take this route.)

See: https://www.lease-advice.org/faq/i-cant-afford-to-buy-the-freehold-of-my-house-can-i-extend-my-lease-instead/


You could try to negotiate an informal lease extension with the freeholder - but the freeholder may not be interested, or they might ask for a stupidly high price.


So buying the freehold would be the best option - but as you say, that would need a chunk of cash. Generally, the sooner you buy the freehold, the cheaper it will be.  (As the lease runs down, the price of the freehold will increase.)


If you don't buy the freehold, when you eventually sell, you'd have to find a cash buyer (i.e. no mortgage), so probably an 'investor'. Realistically, they'll want to buy the house (cheaply) and then buy the freehold - and expect to make a profit by doing that. Maybe £20k or £30k or more.

So, in simple terms, in that case, you might be losing £20k or £30k by not buying the freehold.


(If you have a friendly, cooperative freeholder - you might be able to offer the house for sale with a "freehold on completion" - which might make you a bit more money.)

JazF

So the estimated value of the property is around £250,000 but if the lease wasn’t extended or freehold bought we are looking at drop of about £30-40k? Wow

eddddy

JazF said:

So the estimated value of the property is around £250,000...

Are you saying the estimated value of the property is £250k with a 57 year lease?

Or are you saying the estimated value of the freehold property would be £250k?

(Who estimated the value, and for what purpose?)



What I was saying is more like this (using made-up numbers)...

• Let's say the market value of the freehold house would be £300k

• And let's say buying the freehold would cost £50k

• I suspect an investor might want to pay you around £220k for the house with a 57 year lease, then pay the freeholder £50k for the freehold

• So the investor pays you £220k and pays the freeholder £50k and ends up with a £300k house - a profit of £30k