HOMEOWNERS USE SLUMP IN PROPERTY PRICES TO YOUR ADVANTAGE19th Apr 2012
Andrew Howard of Coles Miller Solicitors says that if you are an owner of a leasehold property, typically or often a flat, then now is a good time to consider purchasing the freehold or extending the lease with the freehold owner.
Many people, in particular flat owners, own their property on a leasehold basis, and the freehold is owned by a separate 'landlord', often one of the traditional estates or landowners in the area.
If your lease falls below 75 years remaining it is considered a short lease and far less desirable to buyers. Indeed, many mortgage lenders will refuse to lend on a property with less than 75 years on the lease and, as you will be aware, lenders are becoming increasingly sensitive to lending in the current market.
However, following the Leasehold Reform Act in 1993, leaseholders have the right to apply for a lease extension as an individual or collectively purchase the freehold with other flat owners in their block at a price agreed with the freeholder.
The main thing to be aware of is that the cost of both extending the lease or buying the freehold increase significantly with each year that passes.
Why is now a good time?
Many people believe that the property market in places has reached a low point and is now beginning to even out. No one can be sure that this is true but it is certainly the case that the property prices do affect the cost of a lease extension or freehold purchase if the existing lease is under 80 years.
Eighty years is a key threshold to remember. Ideally if you can extend your lease prior to the 80 year mark lapsing on your lease then you will find it significantly less costly but, every year after, the cost of either process includes a element which reflects the current market valuation of the property. For example, the Leasehold Advisory Service estimate that the cost of extending the lease on a flat worth £165,000 with ground rent of £50 p a with 81 years remaining on this lease is between £2,000 and £5,000 plus fees, whereas the cost of extending the lease on the same flat with 69 years remaining is between £10,000 and £12,000 plus fees.
Renewing the lease will give you an additional 99 years on top of your unexpired term, no ground rent, and you can proceed with this on your own, however, purchasing the freehold with other flat owners in your block, not only means that you own a share of the freehold, it also allows you and your fellow freeholders the freedom to decide on rules common to the occupants, and manage the property as you wish. Obviously this is clearly more attractive to buyers as well and freehold properties sell at a premium to leasehold properties.