One of the most important concerns you need to take into account when selling a leasehold flat is the number of years remaining on the lease. Shorter leases can lead to problems when you try to sell your flat. The most common definition of a “short lease” is a lease which has less than 80 years remaining. Although you may think this sounds like a significant amount of time, it can become more complicated for potential buyers to obtain a mortgage.
Usually, mortgage companies like there to be at least 50 years left at the end of a mortgage term. Most mortgages are for 25 year terms. This means that they may not offer loans on properties with less than 75-80 years remaining.
You should also bear in mind that the costs involved for extending this lease will begin to rise. The longer you wait, the more difficult this situation could become. So, how can you begin the process of selling a flat with a short lease?
Selling a Flat with a Short Lease: What are the impacts?
A further complication concerns the perceived value of the property in question. As the remaining length of a lease reduces, the aggregate value of a flat or a home will likewise decrease. This is not usually a problem for properties with leases of longer than 90 years remaining. So as well as affecting the value, a short lease can narrow the range of buyers interested in your property.
Obtaining a Lease Extension
Extending your lease is a common solution you could employ. It will help to add equity to your property and it will become much easier for a potential buyer to obtain the necessary mortgage. There are two ways in which this can be done.
You can choose to contact the freeholder directly. This rather “informal” method can be much cheaper than relying upon the statutory process. An important difference is that unlike the statutory process there is no 2-year ownership delay. This means that you can get the leasehold extension without having to wait two years. However, the freeholder may impose onerous terms. For example, the ground rent might be increased which can have a damaging effect on your property. You should make sure you get a valuation from a surveyor and professional legal advice, particularly if dealing with a professional freeholder.
Your rights to a Lease Extension
The second option is to take advantage of your rights afforded under the Leasehold Reform Housing & Urban Development Act 1993. Assuming that you have been the leaseholder for two years, it is your right to apply for a 90-year lease extension with no ground rent. A surveyor will normally be employed in order to determine how much you will be required to pay to extend the lease. This cost can vary and as a rule, it will increase as the existing lease falls further below the 80-year mark. You will need to pay what is known as the “marriage value”. Marriage value represents the increase in the price of the house due to the lease extension. The freehold landlord will be entitled to half of this increase. Properties with a current lease of over 80 years are not associated with this extra fee.
The bottom line is that selling a flat with a short lease can take a good deal of time and be quite challenging. Still, waiting will only cause costs to rise. It’s a good idea to learn more at the www.gov.uk site and to speak with a qualified professional.