Short leasehold on a flat - always avoid?

[NigellasGuest]

Very often, London flats are on the market for less than normal due to not having very long left on the lease. Is it always a bad idea to consider purchasing such a flat? Who DOES buy them - are they property developers or legal types who know their way around this?

I guess what I’m really asking is, would I be foolish to consider a shorter lease in my keenness to get a bit of a bargain? Looking for one bedroom as central as possible for under £500k.

I'm not sure if London is different but I'm in the Midlands and considering this myself. The prices are so tempting aren't they. I will be taking into account the amount of years left on the lease and also making enquires/cost into extending the lease if at all possible.
Hopefully someone more in the know will be along.
How long is left on the lease with the ones you're interested in?
And are you planning to stay put for a good few years or not?

There’s not a particular place I have in mind but generally speaking the places I’m referring to tend to have 10-20 years left on the lease. Yes, planning not to resell for a long while - would probably leave it to DDs tbh. Probably the same in the midlands as in London - and yes very tempting!

I have a funny feeling it would cost mega bucks to extend lease! If something’s too good to be true, it probably is. Especially in London!

Ask for a quote on how much it would be to extend the lease.

We sold a flat with a shortish lease before the stamp duty changes as we knew we wouldn’t get over the duty threshold anyway so it was a waste of money extending. Not sure why someone wouldn’t do it now though.

If a flat only has 10-20 years left on the lease it is unmortgageable - so you can only buy it if you have cash upfront. Hence the low price.
Mortgage companies tend to be reluctant at leases less than 70 years. Plus at 20 years left it will cost a fortune to extend the lease!

I would be cautious and be asking myself why the current leaseholder hadn’t extended the lease themselves. If it was something that is relatively straightforward, what stopped them. 10-20 years is very short!

As PP said it will be unmortgagable so cash only buyers, and lease extension likely to be pricey.

We paid for the seller of our flat to extend the lease before we purchased it (there's a weird rule about having to own somewhere for 2 years before you can extend).

The remaining lease was 82 years at time of extension and we extended to 125 years at a cost of £7k+ so adding 100 years to the lease likely to be significantly more.

Oh right, I've never seen a lease as short as 10-20 years before, I've been keeping my eye on property for a good few years now and the lowest I've seen is 46yrs left. Like PP has mentioned, banks won't mortgage on leases below a certain amount of years, which is a major problem selling on.
I don't like leases, I want to own the ground too! Needs must and all that though.

Aha - thanks for the info! I would be a cash buyer so that’s not a problem. I guess if it cost around £20k to extend then it’s doable in theory and would still mean a saving on the purchase price even with that outlay. Still would need lots of research on my part though, i just feel there would be hidden pitfalls!

This is a good price. 34 years left on lease. If I was single I'd be living in it. I'd be 80 by the time it'd run out (likely dead, all my family die younger than that).

Just down the road from Harrods.

It must cost a fortune to extend the lease. If you think about how much you would be willing to pay to own the freehold and lease of a central London flat in 10-20 years time so that you could then sell a 100 year lease on it or the whole thing with a share of the freehold, you can see that it would be quite a lot.

Hey Laurie I think that’s one of the ones I saw!

There is a formula where the price to extend goes up a lot towards the end of the lease.

Information can be found here: www.lease-advice.org/

I doubt you would be able to extend for £20k. Instead think of it as a long term rental paid in advance. Add in the cost of ground rent and services charges, and decide if you have a bargain or not.

Well it makes unconventional financial sense in a way. Presumably the rental income on that flat would outweigh the purchase price.

I wouldn't put it past them wanting £50,000 to £100,000 for lease extension, Of course total guess on my part but I've seen £10,000 to £15,000 lease extension costs on a property worth around £90,000, where there's about 50 years left.

I knew people who bought such a lease. Newly divorced mum with two University aged children. She reckoned she and the children needed 10 years in London to establish, and in her case, complete their careers. I assume she must have used the rest of her divorce settlement to buy something far cheaper outside London as her eventual retirement home.

A logical decision, not least because the flat was in a super location, but in no way a traditional investment.

Jeez, I was just having a look at that Knightsbridge flat and on the same page for sale parking space offers in excess of £200,000.

Vitalogy, the value is largely controlled by law and unless you achieve value by amicable decision, is something that is determined by a statutory process, set out in the link above.

Before anyone else posts with wild estimates, here is the calculator:

www.lease-advice.org/calculator/

Soz.

I extended a lease with 68 yrs left. Flat worth 330ish then. Cost was £17k.

Id guess a central London place with only 10-20 years left would cost in the region of 150-200k to renew. If it didn't then lots of people would be doing it.
I'm going to go test this theory on the calculator now... Live blogging how good my guess is! It might even be more. I'm excited to find out.
Will have to make assumptions about ground rent

Extended a lease on a previous flat in central London from 78 to 125 for about £20k.

A flat with 20 years left will be A LOT more than £20k.

I was a LONG way off. I couldn't use the calculator linked to, so googled and found another for shorter leases.

Putting in guesses on 15 yrs on lease, 500k value with current short lease (ie OP's budget) and a very low ground rent estimate of 100pa, I goy an estimated premium of approx 500k! As I suspected, if it was that much of a bargain then investors would be doing it.

Ah I knew there would be a catch, a big catch!!

If the lease is under 21 years then you don't have the same rights to extend the lease. You are basically paying up front for a very long tenancy. That doesn't mean it's a bad idea. 275 grand for 20 years in Kensington is still pretty good. But you are not buying it.

Usually un-mortgageable if less than 70 years left on the lease
Usually you can extend the lease after 2 years ownership but at a price ( more or less bringing it up to market value )