Are you searching for a flat to buy? If so, you may have come across some properties for sale for a fraction of the price you think they should be. This is likely down to the fact that the property has a short lease.
A residential lease with less than 70 years left to run constitutes a short lease, but properties with leases of five years or less remaining are still sold.
This is most often seen with apartments in urban areas due to the higher percentage of leasehold flats compared to houses.
If you are considering buying a flat with a short lease, it is vital to research both the laws surrounding purchasing properties with short leases and the property itself in order to make sure you understand what you are taking on.
Extending a short lease
Leaseholders have a statutory right to extend their lease by 90 years once they have lived in their property for two years. If you plan to purchase a property with a short lease, waiting two more years before you can apply to extend it is far from ideal.
If the previous owner has lived in the property for two years or more, you can request that they serve a statutory notice to extend the lease as a condition of purchase. This can then be assigned to you as soon as the sale is complete.
Letting a short lease run down
You do not necessarily have to seek a lease extension on your property, but there are certain circumstances where this is a sensible decision.
Flats with short term leases can seem a very appealing prospect to retired people and those who have no dependents or relatives to leave an asset to after they pass away.
Properties with short leases are also attractive to buy-to-let investors who can make their investment back many times through renting the property for the remaining duration of the lease, then simply allowing the lease to revert back to the freeholder after a few decades.
However, even if you do not intend to renew the lease on a flat and you are planning to simply allow it to run down, there are many other costs involved.
Typically, owners of leasehold property in prestigious areas do not allow a lease to run down. For this reason short term leases generally occur when the owner cannot afford to extend their lease and as such are often found in less affluent areas.
Properties with short term leases are often in less than perfect condition and can require extensive, costly refurbishment before they are habitable. You must also factor in the cost of any ground rent and maintenance fees within the terms of the lease, which may be considerable.
Getting a mortgage on a flat with a short lease
It is extremely difficult to secure a mortgage when buying a flat with a short lease. The only loans available are likely to be through specialist lenders and they will charge a far higher rate of interest than average due to the high risk nature of a short lease property purchase.
If possible, you should, therefore, be prepared to pay cash for the flat in order to make the property a good investment.
Want to learn more about flat leasing or any other aspect of residential property management in London? If so, then contact the Redbrick team today.