69 yr Leasehold?

dbg

Helping my brother buy his first house (he's lived with our parents all his life but as they've now passed away the family home is being sold from under him by me). He's found one he likes but when I enquired about it for him they said it was leasehold with 69 years left on the lease and an annual fee of £47 (that's why the purchase price is quite attractive). What are the sort of questions I need to be asking?

rubertoe

How much to extend the lease would be a good start? Have the owners asked about extending the lease? does the current price reflect the 69 year long lease?

If the current owners will entertain extending the lease, this can be added on to the price, if not their should be a reasonable adjustment in the price to reflect a short lease.

Basically - the fact that the lease is only 69 years may put of some lenders from mortgaging the property.

I went through the same thing a few years ago when i bought my flat, but we bought it at a reduced price due to the short lease (76 years) and will look to renew it/ add to it and then use that to add a premium when selling.

dbg

The property is empty and at 89K is about 5-10K less than I'd expect it to be I guess, my bro will pocket about 75K from the sale of our parents house so he probably won't need much of a mortgage.

rubertoe

In that case see how much it is to extend; and ask either the the seller to do it and add it to the price or buy and see if you can arrange a better deal with the freeholder directly.

rolf_f

This makes me so glad my lease still has 926 years to run

Pross

Better still look at the possibility of buying out the Freehold. I did this on my house when it had about 60 odd years left to run. If you stay leasehold then you would normally be expected to seek Freeholder consent to do any major renovations / extensions. Buying out the Freehold should also add value to the house.

Yossie

Go and see a lawyer - you're talking putting in leasehold extension requests (generally best before its sold as then your brother would have to wait at least 2 years before he can apply), sorting vaulations, LVT tribunals, reviewing documents, sourcing quotes, statutory leasehold extension periods, etc etc.

Essentially we on here can do most things bicycle related: when it comes to stuff like this go an see a lawyer. Or the CAB office- they will have booklets on lease extension/freehold enfranchisement.

EKIMIKE

Definitely seeing a competent lawyer is the best thing you could do. You don't want to screw these things up. In the meantime you could see if the property is registered:

http://www.landregistry.gov.uk/www/wps/ ... xVDUzMDQz/

Give's you some useful info if it is. It only costs £4 to purchase the register. You'll get something like this:

http://www.landregistry.gov.uk/www/wps/ ... gister.pdf

If it's not registered land then you won't be able to get anything like this. It'll all be 'on paper' i.e. the deeds.

schweiz

This whole 'short lease' issue really annoyed and confused me when I was buying a house 12 years ago. Lenders werre saying there's only 'x' years left on leasehold (often more than 60) so we wil have to charge more interest on the mortgage. I was only looking for a 25 year mortgage so as long as the leasehold is for 25 years, why should the lender care?

Now I'm a bit older (and hopefully wiser) can someone in the lending industry please explain to me what the problem is with 'only' having 70 years left on a lease when it's highly unlikely anyone will live in a house that long?

And also, the leaseholder on my parents house is always trying to get them to buy the freehold but they want 10's of thousands for it and my dad only pays 20-odd quid a year for the leasehold on a 999 year lease of which 958 remain so where's the incentive for him to invest in the land when the main value is in the bricks and mortar?

dbg

Hmm now I'm starting to understand why its been on the market so long! I suppose the sensible advice for my bro would be to look elsewhere? Assuming he can't buy the freehold surely he'd have a devil of a job if he wanted to sell it?

Yossie

Not really - if he can get a lease extension to take him back up to a 999 year lease then no worries at all: the cost would have to be negotiated through Counsel and LVT.

Freeholds are trickier for as much as your brother wants to own it for the logical reasons that the freeholder doesn't want to sell it. That's why they always turn messy.

You can go for compulsory enfranchisement if he is part of a larger block and you have the necessary backing with the block/tenants association, but you would have to run this through legal Counsel, not some blokes on a bicycle forum, and see what is in place already - these things are very time consuming and very expensive.

Essentially, if he likes it and doesn't mind faffing around then go for it, otherwise look elsewhere. It's a buyer's market out there at the moment anyway

ToeKnee

schweiz wrote:

This whole 'short lease' issue really annoyed and confused me when I was buying a house 12 years ago. Lenders werre saying there's only 'x' years left on leasehold (often more than 60) so we wil have to charge more interest on the mortgage. I was only looking for a 25 year mortgage so as long as the leasehold is for 25 years, why should the lender care?

...

A mortgage is a loan secured on an house. It is important to the lender that the house does not fall below the outstanding balance of the loan. If you default on your mortgage they want to be able to recoup all of their money/investment. A house with a very short lease is not easy (almost impossible) to sell without reducing the price significantly. Hence, lenders are hesitant to lend and, if they do, why they often charge more (higher interest/bigger deposits) on the loan.

I'd get legal advice before proceeding.

Pross

dbg wrote:

Hmm now I'm starting to understand why its been on the market so long! I suppose the sensible advice for my bro would be to look elsewhere? Assuming he can't buy the freehold surely he'd have a devil of a job if he wanted to sell it?

The Freehold value will increase the closer the Leasehold comes to expiring which is why I bought mine out as quickly as possible. In my case it only cost a couple of grand plus a few hundred for the solicitor (this was about 10 years ago though). Look into it, it certainly shouldn't be something to put you off if the house is a decent bargain unless the Freeholder is unwilling to sell.

schweiz

ToeKnee wrote:

schweiz wrote:

This whole 'short lease' issue really annoyed and confused me when I was buying a house 12 years ago. Lenders werre saying there's only 'x' years left on leasehold (often more than 60) so we wil have to charge more interest on the mortgage. I was only looking for a 25 year mortgage so as long as the leasehold is for 25 years, why should the lender care?

...

A mortgage is a loan secured on an house. It is important to the lender that the house does not fall below the outstanding balance of the loan. If you default on your mortgage they want to be able to recoup all of their money/investment. A house with a very short lease is not easy (almost impossible) to sell without reducing the price significantly. Hence, lenders are hesitant to lend and, if they do, why they often charge more (higher interest/bigger deposits) on the loan.

I'd get legal advice before proceeding.

I understand all that, I don't get why 70 years is classed as a short lease when a mortgage will be over 20 or 25 years. My understanding is that the ground rent is fixed for the lease period so the costs are known. I would have only thought it would be a problem if the lease was shorter than the mortgage period. The cynic in me always thought it was some land owner/bank 'scam' to renew the terms of the lease and increase ground rent!

brucey72

69 years will usually be a sufficient lease term for most mortgage lenders but the problem relating to lease term and its impact on being able to sell or remortgage arises the closer and closer you get to 60 years remaining on the lease. In effect your brother will be purchasing a house where he is going to immediately have to consider either extending the lease or purchasing the freehold.

Prior to purchasing, I would find out who owns the freehold interest (which can be done through the Land Registry website for a small fee) and as others have said find out from the seller or through the estate agent whether an application has ever been sought to purchase or extend the lease and if it was then the costs quoted. If anyone mentions a company called Simarc Property Management, who a freehold agent, then be slightly wary. I worked in property law for seven years until three years ago and they were notoriously difficult to deal with when trying to do this type of work.

Basically try and gather as much information as possible so your brother can make an informed decision as whether the reduced purchase price justifies the work he will need to do.

Under the terms of the lease you usually have to pay an annual rent charge to the owner of the freehold (the landlord) which is the £47 in your case. Should he ever want to sell or remortgage the property then the landlord will probably charge a 'notice fee' under the terms of the lease and the building may have to be insured through the freeholders nominated insurance company. He may also have to obtain the landlords permission for any alterations or additions he wishes to make to the property and will probably be charged a fee for this consent. This is in addition to any planning permission or building regulation approval required but these are all things a solicitor will be able to check with a glance through the lease prior to making an offer.

brucey72

Ground rent will be stated in the lease and can not be increased at the whim of the landlord. It is up to the lender to decide on the minimum lease term for their lending requirements and it is usually 'mortgage term plus X number of years'.

Part 2 of the Council of Mortgage Lenders handbook stipulates the minimum lease term for each individual lender and you can have a look at 5.13.1 on the following link at the different lease terms required by different lenders:

http://www.cml.org.uk/cml/handbook

To be honest, I am not sure why different lenders require different terms or indeed why 60 years appears to be their limit but it will be to do wth protecting their security.

I hope that helps.

henwl

I'm a regular lurker on this forum, but don't usually post much, however, as a property lawyer I can't resist replying to this.

Basically, brucey72 is exactly right and I suspect he may well be a property lawyer as well. His posts above are great advice. If a client came to me with the op's query, I would tell him pretty much the same brucey did in his two posts above.

dbg

Thanks for the advice gents most helpful.