Buying property is a big commitment and comes with a certain level of risk, particularly when buying a leasehold property. However, it is a popular form of ownership for homebuyers and investors. In England, leasehold property takes up a fifth of the housing market, which equates to 4.6 million homes, with London holding the highest number of leasehold homes at 32%. Leasehold ownership has received some bad press recently due to the ground rent scandal. However, due to government action, as of the 30th of June 2022, ground rent charges are banned on new residential leases in England and Wales. If you’re considering buying a leasehold property, you need to understand what this means and make sure you make an informed decision. At Simon Levy, we have a team of experts with a wealth of surveying experience to help you with your business ventures.
What is a leasehold property?
When you buy property, you are either buying it as a freehold or a leasehold. Freehold means that you own both the property and the land it sits on, whereas leasehold means you own the right to occupy the property for a certain amount of time, but the landlord still owns the land and the property. So a leasehold purchase means you are buying a lease from the freeholder for the right to live in the property. You’ll find this often with flats and apartments, where the property is part of a larger building. Houses are much more clear-cut as you typically always buy the house with the piece of land it sits on. There have been issues with new builds where this hasn’t been the case, and this has led to leaseholds being controversial.
Read on to learn about the 7 things you need to consider before buying a leasehold property.
How many years are left on the lease?
This is the first thing you will need to find out when researching a leasehold. The duration left on the leasehold will be directly proportional to the value of the property. Once the lease has run out, the ownership returns to the freeholder. This rarely happens, but it’s important to be aware of. Search for properties that have at least 90 years remaining on the lease. If there are less than 80 years left, it can impact your chances of getting a mortgage as well as make it harder to sell the property further down the line. You will have the chance to extend the lease, however, this will be very expensive if you have less than 80 years remaining. Make sure only to shortlist properties with more than 90 years or ensure there is an arrangement in place to extend if you want to.
How easy will it be to extend?
This leads us to our next point. How easy will it be to extend your lease? The law states that you have the right to extend your lease by up to 90 years. To do this, you have to have owned the property for at least 2 years, although your property may be exempt from these statutory obligations. Before you sign the contract, you will need to be 100% sure on what your contract entails and whether you are able to extend the lease at all. If you do choose to extend the lease it will be a long process. You may have to deal with difficult freeholders, delays and not agreeing on the premium to be paid. You do have the safety net of the set statutory process that needs to be followed which you can then take to a tribunal if needed. Overall, you need to be aware that this process can be lengthy and difficult.
Make sure to find an experienced lease extension surveyor to help you through the process.
Other costs to consider
When buying a leasehold property, you may be subject to other costs such as an annual service charge. This means that the day-to-day costs of running the building or keeping up the gardens or surrounding grounds are subsidised by the tenants of the leasehold properties. Each flat or apartment will be required to pay for general maintenance including stairwells, lobbies, hallways and roofs. There isn’t a limit on how much a service charge could be so it’s important to find out how much it is for the building you plan to buy a lease for. You should also compare this to others to see if it is in line with the average. It is generally good practice for a landlord to use annual payments towards a reserve or sinking fund. This helps protect you against sudden necessary payments for things like water damage or heating installations.
Check the condition of the property
Just as you would when you buy any property, it’s vital that you hire a professional to complete a property or building survey. This needs to be carried out by an independent surveyor so that you are able to receive an unbiased report on the condition of the leasehold property. It will let you know of any repairs that need to be completed and whether it is up to building standards. At Simon Levy, we offer
full building and structural surveys so that you can have peace of mind. We specialise in property surveys in Barnet, Borehamwood and Watford. Our team of professionals will fully appraise the situation before you purchase - which is important as many mortgage companies do not carry out full building surveys. We have over 30 years of experience providing property surveys in Barnet and beyond.
Do you need freeholder permissions?
Some leases may refrain you from doing certain things to your property. It’s important to clarify what permissions you have and what this means you can and can’t do. For example, if you plan to buy a leasehold property with the intent of renovating it. You need to check your lease first to see what you can and can’t do. If you wish to make any alterations, you need to obtain a licence to Alter from the freeholder. You might also need planning permission from your local authority. You will have to pay a fee to the landlord and take on any legal and surveyors fees incurred by the freeholder, which may not be financially viable for most leaseholders. In this case, you’ll want to do plenty of research beforehand and check the numbers to see if it is possible before putting an offer down.
Do you plan to let the property?
Depending on your intentions with the property, you may need to check the contract to determine whether there are any restrictions on what you plan to do. For example, if you are making a buy-to-let investment, you should be particularly careful with any subletting clauses in the lease. It will tell you whether they are permitted and if there are any restrictions. For example, you may not be able to let it as a holiday home or pets may not be allowed. This could impact your market opportunities so should be taken into consideration. As well, gross leasehold yields should be discounted by 20% in comparison to freehold yields.
Simon Levy - Your Local Property Surveyors in Barton, Borehamwood and Watford
Are you in need of a quality building surveyor? Look no further than Simon Levy, we conduct full building and structural surveys for properties in Barton, Borehamwood and Watford. Get in touch with our friendly team today to see how we can help you. Whether buying a freehold or leasehold property, it’s vital you take the necessary precautions before making your investment. To learn more,
visit our website.
