Press Article
METRO - 16 June, 2011
The long and short of leasehold
By Jo Eccles
As I mentioned in last week’s column, approximately 70% of flats in London are owned on a leasehold basis, so I thought I would explain more about buying a leasehold property and extending the lease. Some people are uncomfortable with buying a leasehold property, and of those who are willing to do so, not many are keen to buy if the lease is short because they are unsure of how to gain an extension.
The definition of a ‘short lease’ can vary depending on who you are speaking to, but from a valuation perspective, a lease of 80 years or more is considered long. This means that extending a lease beyond 80 years will not add any significant value to a property, but if it has a lease of say, 60 years, extending will increase the resale price.
There are pros and cons to buying a home with a short lease. It could be beneficial because you might face less competition if other buyers have been put off by the length of the lease, but a major consideration is that it can be difficult to secure a mortgage deal on a property with a lease of less than 55 years. All-in-all, there isn’t much difference in cost between purchasing a flat on a long lease, and purchasing an equivalent flat on a short lease, then paying for an extension.
The exact cost cannot really be guaranteed until negotiations have concluded and a price has been agreed. You can get a fairly good idea of how much it will cost by speaking to a lease extension specialist, who will be able to conduct a ‘desktop’ valuation of the property to give you an idea of the costs involved and, if you choose to proceed, can visit the property to carry out a formal valuation and then negotiate with the freeholder (who owns the land on which the property sits) on your behalf. You will need to pay your own legal, valuation and negotiation fees, as well as those of the freeholder, so if negotiations take a long time, your costs could increase. Thankfully, the law dictates that the freeholder cannot request an unrealistic figure for an extension.
As with any property purchase, you should always seek professional advice and do your sums before making an offer. In the case of lease extensions, I would always recommend using an independent specialist to get an idea of costs rather than relying on an estate agent. In my experience, agents will often underestimate the lease extension cost when speaking to a potential buyer, so don't rely on any figures you haven't verified yourself!