Things to consider when buying a leasehold property
With many people struggling to get on to the property ladder, it is important to review all your options. A leasehold property can be an ideal way to buy property for many people, but it is important to know what this sort of property entails. There are many things to consider when buying a leasehold property, most notably, what a leasehold property actually is.
First of all, when you take ownership of a leasehold property, you should be aware that you will own the leasehold property for a designated period of time. You will hold a legal agreement with the landlord, who is sometimes referred to as the freeholder which is referred to as the “lease”. The lease will indicate how many years you will own the property for.
When the lease comes to an end, the property is returned to the landlord who resumes ownership of the property. Flats are predominantly leaseholds but houses can be leaseholds too, especially if they are purchased through a shared ownership scheme.
There are a number of things to consider when buying a leasehold property.
How long is the lease set to run for?
It is vital that you understand how many years remain on the lease before you agree to buy the property. If the lease is less than 70 years, you will find it difficult to obtain a mortgage and if you do obtain a mortgage, you will find that selling the property is problematic (unless the lease has been extended).
If you are seriously considering a leasehold property, you should be looking for a lease that has at least 90 to 125 years left on it.
Are you able to extend the lease or can it be extended for you?
If you are considering a leasehold property, you should be looking into extending the lease. Before you purchase the property, you can request the current freeholder extends the lease for you. Alternatively, once you buy the property and own it for two years, you can extend the lease if you meet the qualification criteria. It is important to note that the less time left on the lease will make the extension process more expensive and more challenging.
You should also be aware that the freeholder is likely to charge you a fee for extending the lease of their property (which is understandable from their point of view). To determine the amount of money you are likely to pay to extend leasehold, contact the Leasehold Advisory Service (LAS) who can provide you with an estimation on how much you are likely to pay to extend the lease of a property.
Do I have to pay ground rent and if so, how much?
Ground rent is a sum of money that has to be paid to the landlord on an annual basis. This figure should be quite a low figure and many people find that their ground rent is £50 a year. Depending on the terms of the agreement, it may be required to be paid as an annual sum or it may be paid up over the course of the year. Reports suggest that ground rent in London is higher than the rest of the country, following the trend of general house prices in London and the rest of the UK.
It is important to be aware if the ground rent is fixed or it is escalating. A fixed ground rent will stay the same each year for the duration of the agreement. If the ground rent is classed as escalating, it will increase over the length of the leasehold.
As an example, a leasehold that spans 99 years, may see the ground rent pegged at £50 a year for the first 33 years, £100 per year for the second 33 years and then £150 per year for the final 33 years.
Are there are any other costs associated with leasehold property?
While you may think owning a leasehold property already incurs a number of charges, there are some other charges to consider. There may be specific building insurance clauses or charges associated with the leasehold, which can increase the amount of money the owner has to pay each year.
The terms and conditions may also impose an annual service charge (common for properties with shared areas like hallways, stairs or gardens) and again, these should be clearly stated in the agreement.
As with any legal contract, it is essential that people fully read and understand the terms and conditions stated within the contract before they sign anything.