15 November 2017
Much ado about leaseholds
Following the huge furor around housing developers forcing buyers to take a leasehold on new homes and the spiralling cost of ground rent, which is increasingly being measured against inflation, the government has proposed that both will be scrapped.
Although that would be good news for those who will no longer have to pay for ground rent or ever have to worry about extending their lease, these changes will not happen straight away and are always likely to remain for those living in apartment blocks. Mike Wragg offers advice for people looking to buy a leasehold property now.
Check how long the leasehold lasts
Houses built before the 00’s usually had leaseholds lasting for 99 or 125 years. Today, there is no reason why a reputable developer wouldn’t offer a leasehold of 999 years. If you’re buying an older house or flat, be sure to check how many years are left on the lease, otherwise it might be impossible to get a mortgage in the first place or the property could be unsellable. The crunch point comes at 80 years, below which it becomes difficult to sell or get a mortgage.
You could ask the freeholder to extend the lease, but this can cost tens of thousands of pounds. However, if this is weighed up against the future value of the property with a longer lease and whether it can be sold again, it might be a good investment. If the freeholder refuses, get advice from your solicitor as soon as possible on what you can do.
Check your ground rent
If you’re unclear about what the ground rent is, ask your solicitor to find out. Years ago, the ground rent would have been a token amount such as a pound. However, today the average is nearly £400 and it could double every ten years, meaning that homeowners could soon end up paying extortionate ground rent - even on a property that isn’t worth very much. This could make it very difficult to sell in the future.
Check what your leasehold permits
Once you’ve bought your property, you can do what you like such as renovate or rent it out on Airbnb - right? Unfortunately, no; it’s not as simple as that. Read your lease and if it says that you can only use your residence as a private property, then your money-making scheme will not be allowed.
You may also have to ask your freeholder for permission to make changes or improvements to your home (and pay them to do so). This charge, along with securing planning permission, could be very costly indeed. Always review your lease, before even thinking about changing your windows or building a conservatory.
Be mindful of additional costs
There are a few. Aside from ground rent, you may have to pay a service charge and if any building or redecoration works are about to start, you may have to pay for these too. Your service charge usually covers the general upkeep in the communal areas of your block. Before you buy, it’s advisable to have a closer look at their current state and if they look as if they’re due for a revamp, the freeholder could end up charging you eventually.
If it’s looking like more extensive work will be required and where the cost for each leaseholder will exceed £250, the freeholder is obliged to go through a consultation process with residents and secure three quotes for the work. Leaseholders can also do the same in order to secure the best possible deal.
It is vital that you read the lease before you buy.
If you need expert advice, you can talk to Mike Wragg senior associate from B P Collins’ residential property team on 01753 279021 or email firstname.lastname@example.org who can scrutinise every aspect of your contract and lease, so there are no nasty surprises when you move in.