How Much Does a Short Lease Devalue a Property?
What Is A Leasehold Property And What Defines A Short Lease?
There are two types of properties – those that are freehold and those that are leasehold. Freehold properties are those whereby you own the property outright, including the land it’s built on. If you buy a freehold property, you are responsible for maintaining the property and land, so these costs need to be budgeted for. Most houses in the UK are freehold but occasionally they can be leasehold.
A leasehold property is one that you own subject to the terms of the leasehold for the length of the lease with the freeholder. When the lease ends, ownership returns to the freeholder unless you extend the lease, which is normal practice. Most flats and maisonettes in the UK are leasehold, so while you own your property in the building, you don’t have a stake in the building it is in.
Some houses are sold as leaseholds and if this is the case, you own the property but not the land it sits on.
The length of a lease is very important because it can affect whether an onward buyer of the property can get a mortgage. As time goes by, the value of a property is affected by the diminishing term of the lease which makes the property more difficult to sell. Typically, it is a good idea to make sure that a lease has at least 80 years remaining.
What Else Do I Need To Know About A Leasehold Property?
It is highly unusual for someone to let a lease completely run out. This situation would mean that you are effectively handing back the property to the freeholder and completely devaluing a property that you should own.
Legally, you have the right to extend the lease at any time and once you’ve owned your home for two years, you have the right to extend your lease by 90 years, as long as you are a qualifying tenant. Usually, you will be a qualifying tenant if your original lease was more than 21 years.
If you own a leasehold property, you don’t own the land. This means the freeholder is, normally, responsible for the maintenance and repair of the building. The freeholder will do this or get a managing agent to do it for them. All leaseholders of the building then pay a service charge to the freeholder. You may also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.
Service charges vary from property to property and are there to pay for things such as maintaining communal gardens, electricity bills for communal areas, and the repair and maintenance of exterior walls. Other charges may include ground rent, administration charges, and buildings insurance (arranged by the landlord).
It is important to understand all charges before buying a property because it can affect whether you can afford to live there.
What Is The Cost Of Extending A Lease?
A lease extension is the cost of adding years back to a lease and extending the time you have before the property reverts back into the ownership of the freeholder. Extending the lease of a property will increase its value and make it easier to sell – but extending a lease can be a long and expensive process.
Costs for lease extensions vary widely depending on the property value, the length of the lease, how much the property will be worth after the lease extension, the ground rent payable, and the attitude of the freeholder.
When flats are built, leases tend to be for 99 or 125 years. When you extend your lease, you will need to pay the freeholder a premium. The freeholder is entitled to money when a lease is extended as it means they’ll wait longer for possession of the property and also because once a lease extension is granted there will no longer be any ground rent payable.
As an example cost of a lease extension, for a flat with 80 years remaining on the lease and expected to be worth £400,000, with a ground rent of £100 per month, a lease extension may cost £10,000 to £15,000. This, however, could be much higher and some lease extensions can cost £50,0000 or more. It is worth noting that freeholders can be notoriously difficult to deal with.
What Options Do I Have If My Property Has A Short Lease?
If your property has a short lease and you are struggling to sell it to those buyers who require a mortgage, then you may need to consider selling it to a cash buyer. If you cannot afford to extend your lease as the cost is too high, then selling to a cash buyer can also be a useful option.
There are a number of options available to try and find a cash buyer. You can either instruct a local estate agent to find cash buyers only for your property, which can take an extended period of time, or you can sell to a property buying company such as Serene Homes. More information on cash property buying companies can be found on our What To Look For In A Property Buying Company page.
There are a number of advantages that a cash property buying company, such as Serene Homes, can offer:
- Every property purchase is done with cash so there is no requirement for mortgage funding
- There is no need for an estate agent to be involved so this saves on their commission
- As there is no need for an estate agent, there is no need for intrusive viewings
- Serene Homes are happy to buy properties cash for properties with short leases
The process from contacting Serene Homes to actually completing on the sale of your property is also very simple and includes only three steps:
Further to this, every valuation undertaken by Serene Homes is a free valuation. More information can be found on our Property Valuation page. Once the valuation is complete and the final price is agreed upon, Serene Homes guarantees to buy every property.
Contact the Serene Homes team today to learn how you can sell your property with a short lease in as little as 7 days with all fees covered.