What would happen if you bought a leasehold property with 34 years remaining

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Assuming its likely you're going to live around another 20 years.

How cheap would it need to be to be a valid financial option?

If that flat was left in an estate, would the beneficiaries be able to renew the lease, or in fact could you renew the lease after you bought it?

The prob with this plan at retirement age is that if your health circumstances change - which can happen without warning in later life - you will find it very difficult to sell it to accommodate your new reality.

Furthermore, the service charges and ground rent cost can fluctuate over time, with the kicker being the eye watering costs for building repairs that you have to contribute to.

I had looked at buying a flat for my daughter but a bit of reading on the costs of ownership put that idea to bed quick sharp.

Is it in a tall building, over 7 stories? If so then beware the potential impact of HRB legislation on the service charges.

if not and it’s reasonably cheaper than renting then no reason not to I think.

What is HRB?

And Ive just been looking a variety of flats, not just one or two.

Yes one I looked at was on the 14th floor!!!

@soupyspoonSorry, high rise building (though actually means high risk building)…there’s a raft of new legislation post grenfell and costs are generally passed onto residents.

What would it cost you to rent for a year and how many years might you need it. Work out a short, medium and long term time horizon. If its cost is less than the minimum time for which you need it, it might be worth a punt but bear in mind you might be much less capable of moving yourself in twenty years (and how would you finance it).

Well a lot of the flats have around a 110k guide price Ive been looking at, this one in particular happened to have a guide price of 60k, and at auction I presume they go for much more

But lets say as an example you compared a 1 bed flat for 100k with barely anything on the lease, so you accept you would lose the property when you die because the lease will only just outlive you.

Ball park figure of rent in that area for a one bed flat is around 600-700 a month. So over 20 years, thats 144k. (at 600pcm)

So the cost of the flat, plus service charges for 20 years, plus any maintenance or improvement costs would have to be less than that, for that to make sense.

In fact just looking at the range of rental prices, 700pm seems to be more realistic as the lowest rent you could find across the board, so that takes up the 20 year cost to be 168k.

Assuming the rent neve rose.

Decent option if cheaper than renting over the time period.
Depending on the situation, the freeholder might try and buy it back from you at some point but it's up to you if you want to sell.
I've seen these created deliberately and marketed to people in your situation as an alternative to renting.

I'm also interpreted in this scenario.

As a pensioner, so long as the flat has a lease length that takes me past 100 then I'm fine. It'll need to be ground floor to make sense practically.

I don't want to leave anything to anyone - they're all sorted already. I don't care about needing to sell to cover my health costs. I'll leave myself to the mercy of the state.

Maintenance costs are just part of the reality of owning a home and keeping it in good order. Anyone with a freehold home should be setting aside large sums each month to cover future maintenance. Most don't!

I am worried about what happens when I die as I don't want it to be a burden to my executors. Someone earlier said that they had to extend the lease to sell it. Did they HAVE to? Or did they only do it to try and make some money on what's left? Could my executors sell it for £1 with the remaining lease just to get rid?

Well exactly, could they just walk away, if the estate is dealt with by a solicitor as the executor, surely they would just absorb it into any financial settlements.

No, you don't need to extend in order to sell. If you have a flat with 5 or 10 years remaining it will have a value. It will be compared to the annual rent.

This makes sense. There could be some odd edge circumstances where there was a year or two left on the lease when you die, and the inflated service charge was greater than the rent value. Not sure if giving the flat back to the freeholder is an option? Rather than having to pay someone to buy it!

Happy to be corrected if I’m wrong, but I understand that if you need care then your local authority would put a charge on your asset if you had no other assets or savings and the cost of care would go over the threshold.

I would never buy a flat because of the extra costs compared to when you buy a house. Those service charges will keep going up and up and who wants to pay them in retirement?

But in this scenario, the poster isnt leaving the flat to anyone so it doesnt matter if the state put a charge on the asset, which would be worth tuppence by then anyway.

The service charges are an issue, certainly for purpose built blocks, for conversion flats, they seem to be cheaper but again you have no control over it, unless its share of freehold, which these very cheap flats wouldnt be.

@Catsinaflat if you don’t mind me asking, did extending the lease at point of sale give you any benefits (apart from not having to have the money up front) or any downsides? Any issues with mortgage lenders? Similar position.

It is a choice whether or not to live in a well maintained home. I would rather do so and see little difference between paying the service charge on a leasehold flat or saving the appropriate sums to maintain my own freehold house.

I have never understood why people see service charges, in principle, as an issue. I do understand that many pensioners neglect their homes in later life (see RM) either because they are happy enough or have not budgeted properly.

The main risk would come from not having any control over the rate at which the maintenance charge increased and any one-off charges which are passed onto the leaseholders such as needing a new roof. What would you do if/when you could no longer afford to pay the maintenance charge?

The other risk would be that you outlive the length of the lease and not being infirm enough to qualify for a care home. At that point you would have very few options and mot be best placed to resolve them yourself.

Niether risks i would want to 'raccept myself.

But lets say as an example you compared a 1 bed flat for 100k with barely anything on the lease, so you accept you would lose the property when you die because the lease will only just outlive you.
Ball park figure of rent in that area for a one bed flat is around 600-700 a month. So over 20 years, thats 144k. (at 600pcm)
But money isn't the only comparative. If you buy the lease then you have security of tenure.
The flip side is that you are stuck there forever, So if you decide that the area has gone downhill or no longer suits your lifestyle then that's tough. I suppose you could rent it out but that's a mug's game these days.

Am I missing something?

A PP wrote that they extended their lease for £25K. Wouldn't it make sense for someone buying a cheap short-lease property to just pay some money later to extend it and make it sellable at a market price again? Still appears to be cheaper than buying a similar long-lease flat.

I guess you would have to add up the costs of maintenance plus any service charge and ground rent over the 20 years. And what would happen if you needed to move out for health reasons. It sounds a good idea to me but I don’t know anyone who has done it.

I would make sure that the remaining lease length saw me beyond age 100.

In the same way, we have no control over the increase in the costs of maintaining our own home, but at least you have the option of choosing not to maintain your own home (see RM).

But it's a good point. My strategy would be to ensure that the combination of my pension and allotted savings would cover service charges increasing at 150% of CPIH.

@AnonAnora
Am I missing something?
Yes!
A PP wrote that they extended their lease for £25K.
They also said that their remaining term was 'a lot longer than 68 years'. OP is talking about 34 years. The sums will be very different.

I believe that if you stop paying the charges, the freeholder will eventually repossess the flat. Win win in this case .

I think you should also take into account opportunity cost. If you invested 100k then you’d expect to get a decent return. Obviously there is tax but would service charge plus opportunity cost be less than rent minus investment income (after tax)

This is a really interesting thread. I have always lived in flats with a shared freehold, but we are buying a bungalow now. Who does hold all the freeholds, it sounds like a good business to be in if people just give up properties and you get them for free?