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

mlz1413

As Eddddy has said,  you will need a cash buyer.

Mortgage companies want to know that when the mortgage term ends the property is still worth something.  So leases with lease than 80 years are not attractive.

You are already far less than that, so would need to add 50 years now to ensure in 20 years time you were over the magic 80 years.

There are Leasehold Reforms going through government,  but it is a slow process. So definitely have a read and see if it might help your parents. 

JazF

Sorry should clarify. 

The £250k figure is just a website guesstimate of what their property would be worth if it went on the market at this moment in time. 

Obviously this doesn’t take into account the lease length. 

A lot of things to consider. It is a popular area and they constantly get notes through the door asking if they want to sell but if these are probably people needing a mortgage. 

gwynlas

When they bought they would have had a 99 year lease which was quite common for the time and might well have not been offered the freehold.

It would be best to purchase the freehold now as cost will only go up.

If they cannot afford it and you can then you could secure the cost with a charge on the property.

Are you likely to inherit the property in the long term or would it be shared with siblings?

JazF

@gwynlas the property would be split between myself and one sibling. 

I’m not sure what you mean about securing the cost with a charge on the property so will do some investigating, thanks 

molerat

You lend your parents the money and add a charge to the property to ensure you get your money back.  That means when the property is sold the total value for the 50/50 split is reduced by that amount and you get that back on top of the reduced split amount.

SiliconChip

molerat said:

You lend your parents the money and add a charge to the property to ensure you get your money back.  That means when the property is sold the total value for the 50/50 split is reduced by that amount and you get that back on top of the reduced split amount.

What we don't know is if there is already a mortgage on the property - I suspect not but the OP hasn't said one way or the other in any of their posts. If there is then I'd guess that would make a charge on the property more difficult to obtain.

JazF

SiliconChip said:

molerat said:

You lend your parents the money and add a charge to the property to ensure you get your money back.  That means when the property is sold the total value for the 50/50 split is reduced by that amount and you get that back on top of the reduced split amount.

What we don't know is if there is already a mortgage on the property - I suspect not but the OP hasn't said one way or the other in any of their posts. If there is then I'd guess that would make a charge on the property more difficult to obtain.

Just in response, the property is mortgage free.