I’m hoping the great and the good on here can give me the benefit of their knowledge.
We are looking at flats for our daughter who is keen to get her own place and have found that they all seem to be leasehold which I have no experience with.
We have found a nice One bedroom flat with 74 years remaining of the 99 year lease and I don’t think this will be an issue as I guess that she will only be there for a few years (she’s 26 and single), to me this seems ok as she will have presumably sold it on in maybe 5 years max. However the agent made a bit of a point telling us that the flat is priced low to account for the renewal of the lease in the next few years.
My question is, at what point during a 99 year lease does the remaining years start to affect the value of the property.
Additionally, is there anything else we should be aware of when getting into a leasehold situation in a block of 4 flats?
Thanks in advance..
The shorter lease will make the property harder to sell as it will put a lot of people off, it also impacts the price as you've already alluded to. Extending an existing lease can be very costly.
Ony other thing to consider with a leasehold is there will most likely be a service charge in addition to the mortgage payment which can vary considerably.
who owns the Freehold?
my daughter bought a flat and Wandsworth Council owned the Freehold - they were a pain when it came to alterations and repairs
I would never buy another Leasehold flat unless it included a share of the Freehold, and even then I'd think twice - just MY view
Last edited by BillN; 19th March 2020 at 22:37.
Do you know (or can you find out):
1. Who owns the freehold?
2. Who manages the block? (There will need to be a Management Company who arrange communal works such as maintenance of the buildings, the buildings insurance block policy, gardening, etc). Find out what they charge, and how often they review their fees. Do they have any major repairs or improvements planned?
Although no trees were harmed during the creation of this post, a large number of electrons were greatly inconvenienced.
Why are you buying when she's going to be there for 5 years max? You've got all the hassle of finding a flat, paying the estate agents, solicitors etc. You use up her first time buyer stamp duty freebie and reduce her H2B and LISA options. All instead of renting for up to 5 years max?
Would certainly do the sums and see what kind of capital appreciation you'd need to make it worthwhile compared to renting and see if you think it's worth the hassle.
Don’t touch it. Anything with <80 years left on the lease you’ll have to pay “marriage value” when extending it which means you’ll pay twice - once for the lease extension and a portion of the increase in value of the flat to the freeholder.
agreed - my daughter had this when they wanted to remodel and create a second bedroom - totally bizarre that you have to pay to get the work done and then make a payment to the Freeholder for the increase in value that you have paid for and createdOriginally Posted by IanBear
You don’t mention location, shorter leases are more acceptable in say London for obvious reasons. It can be difficult to mortgage on short leases, which is why they are often auctioned (for cash buyers). Depends on price, location, legals etc, might be a good deal or terrible - be careful.
.
The second point BWP has raised can have significant responsibilities behind it. A family friend purchased locally and some of the responsibilities were down to the residents. After some investigations, most were unaware - there was no resident coordination and they had no communal 'fund' for some of their potential liabilities.
When you look long into an abyss, the abyss looks long into you.........
Rent a flat. Buy when you and her can afford somewhere freehold.
Started out with nothing. Still have most of it left.
When I was in my 20s I bought a flat like this and I am kicking myself for the last 20 odd years I didnt buy a small 2 bed house at that time.
The flat has an annual management fee and the lease issues like you describe mean its hard to sell. Also, flats seem to 'age' more than houses. Flats always seem to be outclassed by other flats in the vicinity and they dont hold prestige.
Sorry if my advice/opinion has veered off the original lease question.
You may wish to leave it a few months and see how the housing market shakes out after Coronavirus.
35%+ drop in the stock market are not immediately favourable for the housing market
^^^^This
Will she?
You are much braver than me if you are going to buy a flat at the start of a global pandemic and what is shaping up to a recession at best and depression at worse.
Last edited by Alansmithee; 20th March 2020 at 09:03.
A flippant reply, but come to Scotland, no such things as leaseholds here.
David
Infinite Diversity in Infinite Combinations
If she has any chance at eligibility look at shared ownership as an alternative. Yes there are restrictions but it's a good way to get on the property ladder and you're not chucking money away as you would by renting.
Ultimately though a decent 2 bed freehold terrace would be the best bet, depending on your location they can be surprisingly affordable and if it's a short to medium term stepping stone then help to buy is also something to consider.
I dislike flats intensely, and although I've lived in them I'd never buy one unless it was for investment or letting purposes but understand that sometimes there is no choice, just be careful and understand all the charges, how they can increase and who is responsible for what.
You can probably work out what an extension would cost online - here, for example. Not always such a bad thing as an extension will normally result in a significant increase in value. (Aside from value, the main issue is whether the term is mortgageable or not.)
Why is renting chucking money away ?
Personally, I'd be looking at leases with 125+ years on them or better yet with share of freehold. As the length of the lease decreases, it becomes increasingly harder to mortgage as well.
If you're really keen, find out the cost of extending the lease.
As an executor to a will, I am currently in the process of selling a flat with a similar remaining lease period. To say that this has been a long and difficult process is putting it mildly. We have finally agreed a price with a buyer which is £40,000 less than the original, (already low due to the length remaining on the lease), valuation of the property, (by three separate estate agents, who were within a nat's of each other in respect of saleable value).
The simple facts are that the remaining length of lease dramatically limits the audience, affects the current and future selling price, and in many cases restricts the ability to obtain a mortgage. This situation worsens as the remaining length of the lease drops - your daughter may be able to get a mortgage now, but would a future buyer be able to five or so years down the road? I suspect unlikely.
As others have said, the cost of buying an extension to the lease can be prohibitive.
Given my recent experience I'd suggest your Daughter treads very carefully and explores other options out there.
HTH
Best Regards - Peter
I'd hate to be with you when you're on your own.
Shared ownership seems to be the worst of both worlds based on the experience of friends. You are tied down due to being an ‘owner’ but still ‘Chuck away’ money in rent. A lot of them don’t seem to increase in value in certain areas as other new blocks are built.
I would advise the OP to avoid something with a lease that low. Look at a share of freehold or something with 125 years minimum. Also look at service charges and ground rent.
When I bought my first flat I compromised on the location (a bit further outside London that I wanted) but managed to get a 2 bed. I rented the second room to a friend (which you can do tax free up to about £9k a year) and overpaid the mortgage with the rent, put me in a much better position when I made my next move.
Renting a room is only possible on some leases - some prohibit renting part of the property, i.e. you can rent it in its entirety or none of it.
The problem is is that a lot of estate agents really resist you getting a look at the lease until you're much further on down the line. It's no good getting their or the vendor's word on it as they may unknowingly mislead you. But it's key to the decision making process with regards to proceeding further! You just have to keep pushing them to provide it and be fine with walking away, frequently.
I currently own a flat in West London.
Additional Points I would mention:
Leasehold / Freehold: I would only consider buying where you also get a share of the freehold - this way you avoid being at the mercy of an unscrupulous freeholder.
Service charge: is there a sink fund? ie has money been set aside for ongoing maintenance / major repairs?. A lot of blocks keep a minimum in reserve to minimise the service charge, this is an ongoing issue as we have as a lot of the owners ( 40%) who are absentee landlords and loathed to spend any money. When I moved in 15 years ago after a couple of years it was clear the roof needed replacing at a cost of £130k split between 17 flats. In an ideal world the sink fund would have made up a significant part of this but due to years of underfunding it was nowhere near. Lesson learnt.
That is a fair point, I have no idea if my lease had any restrictions, my solicitor certainly didn’t pick it up. In all honesty I’m not sure if I would have followed the rules strictly as I rented a room out to a friend very informally.
I found house hunting for a flat was incredibly frustrating. The absolute first questions I would want answered are:
-What is the length of the lease?
-What is the service charge?
-What is the ground rent?
90% of agents can’t answer these questions on the first call.
Avoid leasehold like the plague for all the above reasons. Also avoid renting, you're just paying someone else's mortgage or topping up their pension pot. So that leaves freehold, living with parents or social housing. Assuming the latter two aren't possible or desirable, it has to be freehold. I imagine that we will see a lot of properties becoming available when financially over extended landlords start evicting non-paying tenants, so that the landlord can sell before the market crashes too far. Deferred rent payments are not going to work for tenants who lose their jobs. I imagine that landlords will be feather-bedded through this though, as our government put great store in the value of the housing market, and the current homeless figures should be embarrasing enough.
Last edited by Templogin; 20th March 2020 at 15:35.
no matter what, if your daughter has found a flat she really wants, she won't (want to), understand all these arguments against!!!
Pretty simplistic and one-sided point of view. The OP stated that the ownership would be for a maximum of 5 years, and in those cases renting can certainly be a viable alternative. Whilst renting you’re paying someone else’s mortgage (or realistically often just the interest) and topping up there pension pot, yes, but you’re also avoiding stamp duty, agent fees, maintenance costs, risk of a downturn in the asset value, and so on. You’re also gaining the opportunity cost of a deposit that you didn’t need to spend, as well as a great increase in flexibility and speed if you want to relocate.
And unless houses are left empty I’m not sure how homelessness will be affected.
That highlighted part may well become very important given the time-frame the OP is talking about in terms of ownership. It has taken me eleven months to agree the sale of the flat I'm having to dispose of as executor, which has a similar amount of lease remaining as the OP's. I imagine in another 5 years I would have had to wait even more time for a buyer.
OP. Have you asked the estate agent how long it's been on the market? And how many viewings has it had to-date? If not then you really should.
Best Regards - Peter
I'd hate to be with you when you're on your own.
If you are contemplating buying a property you will eventually become liable for stamp duty, agent fees, maintenance costs, risk of a downturn in the asset value. You didn't mention upturn in value I note. I have assumed that at the end of the 5 years, the OPs daughter is not going back to renting.
Renting is and almost always has been a waste of money, but for those such as me who have chosen fairly nomadic lifestyles.
Well yes, but you pay at each transaction. Assuming she buys later then it would still be an extra set of stamp duty, agent fees, maintenance costs, etc, plus she would lose the potential benefit of being a chain-free buyer and first time buyer at the next step. I didn’t mention upturn as on balance I think stable prices or drops are more likely. On that point your mileage may vary...
And renting being a waste of money is a huge generalization. There are so many variables... and don’t forget we are living in the present not the past. Your “nomadic” lifestyle is becoming less unusual as job stability disappears. I think that when we’re talking about 5 years max in a leasehold flat that renting is a better option.
Leasehold is a poor option. It shouldn't be considered.
I wanted to say a big thanks to all who contributed to this thread, we are leaving that one alone as the vendor seems to think that the £10K plus cost of renewing the lease was built into the price, as such it doesn’t compare well with other properties locally.
She is now about to make an offer on another with 116 years left on the lease, I like it because it’s on the top (2nd) floor so is more secure for a single female and it’s within walking distance from home.
The plan is to make a cheeky offer on the basis that no one really knows what’s going to happen to the property market except that it’s going to stall until we are out of lockdown - as they say ‘a bird in the hand’ etc etc
Thanks again all..
John.
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