Anne Albritton, Associate in our growing Lease Team, details the process of buying a flat with a short lease. She goes on to discuss whether short lease property is worth purchasing, weighing up the pros and cons.
Anne has also written about selling a flat with a short lease, which you can read about here.
What is a short lease?
Regardless of whether your flat is in a purpose-built block or a converted house, it will more than likely be leasehold. This means that you have a right to occupy the flat for however long the lease is for (known as ‘the term’).
So if the lease term has 85 years left on it, this is how long you can occupy the flat for. The lease term, as the years go by, will shorten.
Does a short lease devalue a property?
As the lease gets shorter it reduces in value and becomes less attractive to mortgage lenders.
Different banks and building societies have different lending criteria regarding what lease term they consider acceptable.
Can you buy a flat with a short lease?
If you are a cash buyer, you can; but beware! If a lease gets all the way down to zero days, you would have to hand the flat back to the freeholder and simply walk away from your investment. As such, the value of the flat depreciates as the lease gets shorter.
Can you get a mortgage on a property with a short lease?
Due to the decreasing value of a lease and the fact that you would ‘give up’ the flat at the end of the term, mortgage lenders are picky about what type of lease they will lend against. Most mortgage lenders don’t like leases with terms either approaching the 80 year mark, or where it is already below the 80 year mark.
Lenders are also reluctant to lend against a lease that contains a higher ground rent (sometimes anything over £250) or one that contains certain increasing provisions.
What is marriage value?
When a lease drops below 80 years, an additional form of compensation becomes payable to the freeholder as part of the price payable for a lease extension. This is known as ‘marriage value’. This marriage value will continue to increase sharply as the lease gets ever shorter.
This ‘marriage value’ is the reason the 80-year mark is so important for mortgage lenders – and leaseholders!
Click here to read the full article.