Mortgages on leasehold properties

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Key points

  • A property with a lease under 80 years is more difficult to mortgage and sell
  • Conveyancing is more expensive for leasehold properties
  • Some freehold houses may have leasehold gardens or garages

Guide to mortgages on leasehold properties

When buying a property it's important to know whether it's a freehold or leasehold, as this determines the type of mortgage deal you get.

Buying a leasehold property essentially means you're a tenant - albeit a very long-term one. You usually don't technically own the building or the land it sits on.

It's owned by a landlord, known as the freeholder. Once the lease is up, the property will revert back to being owned by the landlord, unless you're able to extend it.

With a freehold property, on the other hand, you own both the building and the land it occupies outright.

Owners of properties with shorter leases often find that the property value falls (or depreciates) as the time on the lease runs out.

There's a lot to think about before you decide to buy a leasehold property, not least being able to get a mortgage.

Loan to value on leasehold mortgages

Mortgage providers often have a lower loan-to-value (LTV) that they'll lend on leasehold properties. If it's a new build flat or house, it could be even lower.

For example, a provider might offer to lend 90% on a freehold property, but only 85% on a leasehold flat. If the flat's a new build, they might only lend a maximum LTV of 75%.

Lease length

A lease below 80 years can really devalue a property.

This is because when it falls under the 80-year mark, the lease becomes more expensive to renew and it's harder to find a mortgage provider willing to lend on it.

So, if you've got your heart set on a leasehold property, make sure the lease won't drop below 80 years while you're living there. Otherwise, it’ll be more difficult to sell on.

If you can afford it, and you meet certain conditions, you’ll be able to extend the lease by 90 years if you own a flat, or 50 years if you own a house.

Buying a property with a short lease

A lease under 80 years is considered a short lease. It can cause problems when applying for a mortgage as providers usually only lend on properties with leases above 70 years.

You may be able to find a provider willing to lend on a 65-year lease, but this is very rare.

It's really important to find out how long the lease is before purchasing a property, or your purchase could be scuppered by a flat or house which is near impossible to get a mortgage on.

Extending the lease during purchase

If the property you want to buy has a lease under 80 years, you might be able to extend it at the point of sale.

You’ll have to negotiate this with the current owner, as they'll need to start the lease extension process on your behalf. You need to have owned the property for at least two years before you can serve a tenant's notice, which kicks off extending the lease.

If the current owner isn't prepared to begin the lease extending process, think about finding another property. It could save a lot of hassle and money in the long run.

Costs and fees for buying a leasehold property

Buying a leasehold property could end up being expensive, so consider all your options.

If the lease length drops below 80 years, you'll have to pay 50% of the 'marriage value' on the flat or house to buy the freehold or extend the lease.

The marriage value is the extra value the property would gain by extending the lease or buying the freehold. You need to factor this in when purchasing the property, as it could cost you a pretty penny.

Try not to take the estate agent's word on what it'll cost you to extend the lease, as they may not have all the information.

Speak to a solicitor or surveyor for a more accurate idea of how much you'll need to spend and whether it's worth it.

Conveyancing costs for leasehold properties

Conveyancing costs are usually higher for leasehold properties due to the extra costs involved.

The more complex the transaction, the higher the cost will be. There’ll usually be extra legal fees for extending the lease at the point of purchase, too.

Consider choosing a conveyancer with experience and expertise in leasehold purchases.

Mortgages for leasehold houses

Leasehold houses aren't very common but there are exceptions to look out for, so always check the legal pack before signing anything.

New build house

Most flats are leasehold. Houses can be leasehold, but it's usually only if it's part of a shared ownership scheme.

If you're buying a new-build house or a house built on a fairly new estate, investigate the lease situation before deciding to purchase.

Although the house and the property it occupies are freehold, the garage, garden and other shared areas may be leasehold.

Your conveyancer should make you aware of any leaseholds e involved in the purchase, including any maintenance charges and future ownership issues.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE PLEASE NOTE: THE FCA DOES NOT REGULATE MOST BUY TO LET MORTGAGES

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