Property with 85 year lease

[Lalabelle87]

I am getting divorced and I urgently need to find somewhere to live. I have an income of £60k and no dependents. But I only have enough equity for a 5% deposit on a £180-£200k property.

A few suitable flats are up for sale locally because they have leases that are at the 85 year point. I spoke to the agent who said it would be £10k to extend the leases.

I know I likely need to get legal advice but as I only have a small deposit I can’t borrow enough to cover the lease extension on my mortgage when I move in, and don’t have enough in savings.

Does anyone know how this could work? do you think it’s worthwhile securing a mortgage to buy a flat now so I can get out of my marital home then a year or 2 later try to borrow more to extend the lease before it hits 80 years?

I believe at 85 years the property is still mortgageable but I would need to move on it, the issue is if I secure a 3 year mortgage this gives me less time and will be at 82 years. A personal loan would be higher interest and I’m not sure how realistic it is to try to save £10k in the next 2 years from my salary.

As I said, I’m getting desperate so need to make some decisions.

What a horrible time to be flat-hunting, I'm sorry. On the lease question itself: 85 years is still comfortably mortgageable today, so buying now isn't the problem - the number that matters is 80. Below 80 years something called marriage value kicks in, wich roughly means the extension premium jumps up a lot. So your instinct is right: the plan has to be extend before it crosses 80, not just "at some point".

Two things worth asking your solicitor about before you offer. First, whether the seller can start the extension themselves and pass the benefit to you on completion - it's a known route that means the process doesn't have to start from scratch under your ownership. Second, treat the agent's £10k as a guess until a surveyor who does lease extensions prices it properly, because the premium depends on things like the ground rent.

And negotiate hard on the price. Every buyer who walks away because of the lease narrows the seller's market, and they know it - the cost of the extension should come off what you pay, not just sit on your shoulders.

Thanks! I believe the prices are good, it’s a decent 2 bed flat for £180k in the south east of England, in a nice little town. Looking at other flats, the price is already reduced due to the lease issue but the seller(s) don’t want to pay to extend - but I would because this could be a long term home for me. The agent said they didn’t have the management pack so the £10k was what the seller had told them. On my income in can borrow a lot more than £180k, it’s the deposit I am screwed by because no equity in my house and all our savings went into it already.

I can ask them to start it and then I pay for it I suppose? I’m so new to this

I wouldn’t do it.

the lease might be £10k now but it will increase year by year then you have solicitors costs etc.

Buyer could extend as a part of sale but chances are they are selling to avoid extension costs.

So a flat with 88 years is £200k, flat with 86 years is £190k and flats with 85 years are £180k

I am desperate, also I would be living there likely very long term this is what is tempting me.

At the very least the buyer should start the process for extension. I had to amend my lease when selling (there were unfavourable terms) and it only added three months to the conveyancing process.

I personally would never buy a flat with a lease that short. (In fact I’d never buy leasehold at all.)

However if this is your only option and all you can afford, then it might work for you. It gives you a roof over your head and like you say, you could extend the lease in future.

The lease doesn’t necessarily become a problem at 80 years. It only becomes a problem if you try to sell or remortgage when the lease is under 80 years.

Just make sure yhe price you pay for the flat reflects the shortish lease.

My other option is to move to a horrible town that I don’t like at all, or rent and I’m so stressed!

I am viewing 2 of the 85 year lease flats next week and the agent told me to ask the seller about the solicitor costs as they did look into it already so this might give me more info.

I have heard about lease extension mortgages, the issue for me is the deposit if I borrow more!

I would probably not buy a leasehold flat and if I did the lease would be for at least 100 years, but appreciate your position. But, as the market for fiats at the moment isn’t great, you’re in a good position to negotiate.

Could you instead buy a small freehold house further out or a share of freehold flat? You say you’re new to this so have you worked out how you can afford the ground rent and service charges (which increase yearly) and into retirement?

Don't buy a flat with a short lease.

It will cost you money to extend it, you will have issues finding a mortgage provider and if you sell it no buyer will want to buy it unless you have extended the lease.

I would also consider service charges and whether the flats are affected by the cladding scandal.

The market for flats in general is not great so it might not be a great investment either.

I would consider expending your search to other locations. I am sure there are other options than just one horrible town...Where in the South East are you looking?

Or at least make sure you get a firm quote of how much the lease extension would be and ask the buyer to reduce some of the price accordingly.

The only houses in my budget are shared ownership. They are even worse to sell

Being in the SE everything is expensive

I only have £10k equity. Nothing more than this. So I am completely limited in borrowing due to such a small deposit

In one direction from this nice town, is towns too far away to commute to work, towns that are double the price due to commuter train stations, the other is a run down town with horrible parking and run down flats

Also bear in mind that extending leases or trying to buy the freehold is a very lengthy process. My niece is trying to do this , as she wants to sell her house, but the process is taking many, many months. A price has been agreed, but solicitors on both sides seem to working at a snail’s pace.

The ground rent on one listing is £100 per year, the other is £285 so not sure which one is relevant

The service charges are £2500 a year

I have a decent pension which could cover this if I was mortgage free by that time.

I am 46 now

Are you ‘panic buying’?
Flats are going nowhere in price, so you don’t need to jump in because it’s not a hot market, quite the opposite.

Why not rent for 6 months or a year so you can be 100% confident what you are getting into?
I would also not trust the seller saying the extension is £10k. You’ll want that verified in advance.

I am otherwise homeless.

Renting prices are crazy high, it would cost less to get a mortgage

The government are reforming leasehold. This is supposed to make it easier to extend and they have also committed to abolishing marriage value. The reforms are already part implemented and Andy Burnham has committed to completing them. However, it's politics and has to go through Parliament so there are no iron clad guarantees. Have a read up on it but in your situation I would probably go for it.

It costs less to pay a mortgage, unless you make a mistake.
You really need to know what those lease extension costs are.
You can ask on Reddit r/ukhousing, maybe people can give you some figures.
No equity coming from the divorce?

I also agree with your statement about saving. At your age and salary, only having £10k in the bank is not a strong position, especially as buying somewhere will always cost a few k more than anticipated.

@Lalabelle87rubbish advice here.
You can now extend any time after purchase.
Yes, lease extension under 80 years is currently more expensive but very likely to change within 5 years under pending leasehold reform.
And very little difference in the cost of leasehold extension at 81 years rather than 85.
So if you love the flat and it's well priced you have a minimum of 4 years to plan lease extension.
Advising from actual current experience.
Good luck!

Our freehold purchase took a year - and dealing with the legal stuff was a dream compared to dealing with the management company. When I was researching how long it might take most solicitors said a year on average.