24 Dec Six considerations before buying a leasehold property
If you are considering buying a leasehold property, there are a number of factors to understand before taking the plunge. Read on for a quick view.
What is a leasehold property?
When buying a property, tenure can either be freehold or leasehold. A freehold purchase is where you own the property and the land on which it sits, whereas a leasehold purchase gives you the right to occupy the property for a specified number of years but the ownership ultimately sits with the landlord. Leasehold is most common with flats and apartments which are part of a larger building with common areas. Some new build houses may also be leasehold.
1-How many years are left on the lease?
The first thing you will want to do is find out how many years remain on the lease as this will directly affect the value of the property. Be aware that for properties with less than 80 years remaining on the lease, your chances of getting a mortgage can be affected. You do have the option of extending the lease but this can be costly, particularly if there are less than 80 years remaining.
2-How easy will it be to extend?
Legally you have the right to extend your lease by up to 90 years, but usually only if you have owned the property for more than 2 years. Before you commit to a purchase, you will need to make sure you understand the process and the implications of extending the lease. There may be difficult freeholders, delays and disputes over the cost, a process which could end up in tribunal in the worst cases.
3-Other costs to consider
Leasehold properties often come with an annual service charge which covers the day-to-day costs of maintaining the building and gardens. Make sure you compare the service charge to other similar properties to see if it’s reasonable. Check the condition of the property to assess the likelihood of any extra costly charges, for example, due to deterioration in the property. If you’re looking for an experienced lease extension surveyor or building survey in Milton Keynes and beyond, concierge specialists such as Sam Conveyancing can connect you with the relevant professionals.
4-Do you need freeholder permissions?
There may be restrictions on certain things set out in the lease which may be relevant if you plan to renovate the property, for example. Alterations may require a Licence to Alter from the freeholder or you might need planning permission from the local authority, which can be costly and time-consuming.
5-Do you plan to let the property?
If you plan to let the property you may need to check the contract for restrictions. Buy-to-let investments may or may not be permitted and this will be clearly set out in the clauses in the lease. The property may not be allowed to be let as a holiday home or there may be restrictions on pets. All these factors would affect the potential yield on the investment so are worth understanding in full. A general rule of thumb is that leasehold yields should be discounted by 20% compared to freehold yields.
The Leasehold Reform Bill which came into force in June 2022 has seen positive changes to leaseholders to protect them from unreasonable service charges and ground rent increases.
But it should be kept in mind that there can and will be increases to these charges over time. So, together with the factors above, there are many things to consider when buying a leasehold.