Leasehold homes are rapidly losing their value

Many are seeing the value of their new homes fall and this is not as a result of the property market!

Around a tenth of all owner-occupied homes are leasehold. That is 1.43million homes, 817,000 of which are flats. Leasehold is when the land on which the property is built is not sold with the home. All leasehold homes are only owned for the duration of the lease, after which the ownership reverts to the freeholder.

The maximum length for a lease is 999 years. But many new homes have been built with leases that are just 99 years. As owners soon discover, when a lease has less than 80 years left, the value of the home decreases. Properties lose around 5% of the value when a lease reaches the 80-year mark.

When the lease is 60 years or less, homes start to rapidly lose their value and become all but impossible to sell or re mortgage. Most lenders require at least 55 years left on the lease, with around 30 years left at the end of the mortgage term.  Many new homes sold in the 1980’s with 99-year leases may now only have 65 years remaining.

Leaseholders should look at extending their lease when it reaches 85 years. A lease can be extended by 50 years for a house and 90 years for flats. The 1993 Leasehold Reform Act made it possible for all leaseholders to extend their lease by up to 90 years and gives them to legal right to buy the freehold.

To be able to extend a lease you must have owned the property for at least two years and the home must be held under a long lease, with a term of at least 21 years. How much it will cost to extend a lease depends on many factors. The valuation criteria is mainly based on the value of the home, ground rents, yields and the length of the remaining lease term.  You need to serve a notice on the landlord you must also pay him a marriage value which can considerably increase the price. You will also have to pay various other costs such as solicitors, valuation fees and maybe even Stamp Duty. You will be liable for the landlord’s reasonable costs in connection with any investigation the landlord is required to carry out, obtaining a valuation of your flat, and granting the new lease to you. Extending a lease can cost anything from £2000 to £60,000 or even more. Generally speaking, the longer the lease has left to run, the less costly it is to extend.

After a lease is extended the Ground rent will be reduced to a peppercorn effectively meaning no further ground rent is payable.

All homebuyers should give very careful consideration regarding the costs involved in extending a lease before making an offer. New homebuyers in particular should look for or insist on 999-year lease periods.

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