Is now a good time to extend your lease?
The Government wants to make it easier to extend a lease or to buy out the freehold. There are no details yet, but change is certainly on the way.
More than two million homes in England and Wales are held by a lease, with someone other than the people living in them owning the freehold.
But a shake-up is coming. The Government wants to make it easier to extend a lease or to buy out the freehold. There are no details yet, but change is certainly on the way.
So, is now a good time to think about whether to extend your current lease?
Everyone in a leasehold residential property already has the right to extend it and buy the freehold, provided legal criteria are met. But the process can be complicated.
One of the reasons for this is because the cost of a lease is a delicate, expertly-assessed balance between the value of its location and the length of time the lease has to run.
The best advice is to look at your own circumstances when deciding next steps. Whilst waiting for new legislation might be a good idea, any delay adds to the cost of extending an existing lease or buying the freehold.
The extra bill starts in the thousands of pounds, but increasing markedly when leases are less than 65 years, typically adding one per cent of the value of the property to the cost of extending for each year delayed. In other words, a home worth £260,000 can end up with an extra £2,600 of cost each year to extend the lease once the clock is really ticking away.
And that is not all. Short leases are valued at less than longer ones, which can deter buyers if you want to move on. It might make sense to get an extension rather than deal with a falling valuation for anyone planning to sell.
There is another difficulty with short leases: Mortgage renewal. Lenders don’t particularly like short leases. They reduce the value of the secured asset, which is the property, making the loan seem riskier. For some leaseholders, therefore, it will make sense to extend to secure their mortgage rather than wait to see what the Government intends.
If extending is on the cards for whatever reason, think about your landlord. They might be open to a deal now rather than wait for Government changes.
For anyone in a shared property, an option is to club together to buy out the freehold owner, or to press on alone if not. The process of buying a freehold is complex and needs lawyers. But there is a procedure for establishing how much it will cost.
Whatever you decide, now is certainly a good time to think about the lease you have, or the one you are tempted to buy.
Myfanwy Neville is a property specialist at accountancy firm and tax advisers, BKL.
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