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Should leasehold properties be avoided at all costs?
Should leasehold properties be avoided at all costs?
Absolutely not! There are over 1,400,000 leasehold properties in the UK currently and hundreds of thousands of these sell every year with no problems at all, but, there are a few things to watch out for when you are considering buying a leasehold property.
The majority of leasehold properties are flats which make it a bit easier to explain and understand. Basically, if you own a leasehold flat you own the property itself, but the freeholder owns the land or building it sits within.
Should I only buy a property with at least 100 years left on the lease? Not necessarily. As a very rough rule of thumb most mortgage companies need at least 3 times the term of the mortgage remaining on the lease. So, if you are borrowing for 25 years, the mortgage company will not lend against the property if there is anything less than 75 years remaining on the lease.
Of course, there are exceptions. I have sold properties with only 60 years or less remaining on the lease to people with mortgages but, there are only a limited number of companies prepared to lend against these properties and you will not get preferential rates.
Also, if you are a cash buyer who does not require a mortgage then obviously it is irrelevant, but, bear in mind when you want to sell the property and the difficulties you may face.
My mate used a really cheap solicitor when he bought his flat, should I use a cheap one?
It is essential if you are looking to buy a leasehold property to employ a qualified and experienced conveyancer/solicitor to act on your behalf. It also needs to be someone you can talk to and will take the time to explain the details of the lease in plain english. Some leases can be over 50 years old and written in solicitors gobbledy gook and therefore, you will need someone to dissect it for you and pick out the relevant information.
What about all of the extra costs?
It is vital that you find out this information before you even consider offering on a leasehold property as it could substantially increase your monthly budget.
Ground rent
Ground rent is normally a nominal sum of around £50 per year to the freeholder for the privilege of living in the property. However, some newer leases can be as much as £250 per year or more and considering you don’t get anything for it, it has to be taken in to account.
Service charges
These can vary greatly depending on what is included and what type of property it is. Some will include everything from cleaning windows, water & sewerage charges, gardening services to cleaning, heating & lighting communal areas, or even heating and electrics of your own flat if it is a communal system. Whereas, some properties do not have any set service charge and just split any bills equally as and when required. In this case it is important to look back at previous bills to get an idea of what you may be likely to pay.
Sinking fund
Some larger blocks ask residents to contribute some money, usually included in the service charge, into something called a sinking fund. This is a pot of money which builds up over time so that if any large jobs are required i.e external decoration or roof repairs, the freeholder does not ask for further contributions. Again, it is important to find out if any large jobs have been carried out historically, if any are due and how much money is in the sinking fund should anything be required.
Buildings insurance
This is obviously vital should anything happen to the building or structure and it is the responsibility of the freeholder to have this in place. Again prices can vary greatly but it is normally split equally between the residents. Check though to see of you are able to contest the price of the insurance. Some leases state that you are not allowed to get cheaper quotes and it is up to the freeholder who they chooses to use regardless of cost.
Please do not let me put you off buying a leasehold property. You just need to have all the information at hand before you consider offering on the property. You also have to consider that if there is an issue with the lease, you are happy to proceed and ask yourself, will someone be equally as open minded as you when you come to sell?
Ths article is by Rob at Scott & Stapleton Estate Agents
Tel: 01702 47 11 55
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