If you own a short leasehold London flat, or are considering buying one, is it a good move? We take a look at some of the key issues surrounding short leasehold flats and whether owning one could be problematic.
Flats in England and Wales are usually sold on a leasehold basis, which means that you’re buying ownership for a set period of time. It’s common for flats, as they’re part of a larger building, so under a leasehold, the freeholder still owns the land that the property was built on.
At first glance, owning a short leasehold flat may seem like a good option, as the price to buy it is typically much lower than a standard selling price of a flat with a longer lease. For first time buyers, or those keen to get onto the property ladder, the cheaper price can make property ownership seem more accessible and a step in the right direction.
But it’s important to consider all the issues involved with a short leasehold flat as it may not be such a good buy in the long run.
Short leasehold London flat problem 1: Mortgage issues
One of the biggest issues involved with buying or selling a short leasehold flat is connected to mortgages. Mortgage lenders tend to be less than keen on lending money to buyers who are purchasing property with a short leasehold. It’s especially so if the length of leasehold 50 years or less, but it can even be problematic if it comes with a 70 or 80 year lease.
If you can buy the property as a cash purchase, then you can at least conquer the mortgage issue. But when the time comes for you to sell the flat and move on, you’re likely to experience the same issues again, as potential buyers of your flat may be unable to secure the necessary mortgage to be able to purchase it from you. Plus, by then, the lease could be even shorter.
Short leasehold flat problem 2: Lease extension issues
Sometimes it’s possible to arrange to have the lease extended when you’re purchasing a flat, although it’s something the existing owner will have to arrange on your behalf. It can be a tricky process and can hold up the sale considerably.
Also, the shorter the current leasehold is, the more expensive it will be to extend it. So although it might be possible to arrange, any extension of leasehold will add an extra cost to the selling price, and it could then push the property out of your price range.
Alternatively, when you’ve purchased the flat, you could subsequently apply to extend the lease yourself. The downside of this approach is that, under statutory law, you’re only able to acquire the right to extend your lease after you’ve been a registered owner with the Land Registry for two years.
Short leasehold flat problem 3: Hard to sell
As mentioned previously, banks are often reluctant to lend money to buyers thinking of purchasing a short leasehold flat, but that’s not the only reason why such a property can be hard to sell.
In general, buyers tend to shy away from the idea of buying a flat with a limited leasehold on it. There’s no guarantee they’ll be able to extend the lease on it and, even if they can, they’ll need extra budget available in order to make this possible.
Short leasehold flat problem 4: Ground rent charges
As the owner of a short leasehold London flat, you’re likely to be subject to ground rent charges. These fees are charged by the landlord for the upkeep of communal areas of the building, such as the stairs, entrance hall, roof, walls and gardens.
Although the current ground rent charges will be set out in detail when you purchase the leasehold flat, they are renowned for going up. As the owner of the freehold, the landlord sets their own fees and, in some buildings, they’ve been known to vastly increase unexpectedly. As the leaseholder, you’re then bound to pay them.
The potential of increasing ground rent charges is another factor that can put off potential buyers of a short leasehold flat.
If you own a short leasehold flat and decide that you want to sell it, one quick and easy option is to sell through Molae Properties, as it takes the stress out of worrying about these issues and of marketing a short lease property for sale.