Fundamentally the shorter the time left on a lease, the less a home is valued at.
An unexpired time of lease of one hundred or more years has not much affect on the value. With leases higher than 100 years, the worth of the property is essentially unchanged, regardless of the years outstanding. The duration of the lease is noticeably longer than the natural life of most people so this is not a concern for mortgage lenders specifically.
Fall below around ninety years and the notional worth of your flat falls continually faster each year, although at first only at a snail’s pace. Without wanting to scare flat owners, the unexpired period drops ultimately to zero, when the freeholder can take possession of the flat. The good news is this is exceptionally unlikely ever to come about. The bad news is that you may have to pay for the lease extension on your flat to ensure it does not.
A hypothetical suburban apartment with a lease remaining of a year will be nearly worthless in comparison with a similar property with 100 years. After all, who would wish to procure a flat that they would have to hand back to someone else in a year or so?
Leasehold professionals have the same opinion that a typical flat having 80 years left over on its lease will be valued at 5% less than one with a lease in excess of 100 years. (The numbers will fluctuate depending on a considerable number of things however these can be used as a guide – you ought to check with a specialist surveyor and you can find them on the web page of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years outstanding, it will have lost another 8% of its value so that it will be worth 13% less than a long-lease neighbour. Wait another 10 years until the unexpired term is 60 years and it will have lost 20% of its peak value. Looking at an apartment of £200,000 with a long lease in suburban London, this would be worth £40,000 less when the lease has 60 years.
These figures fail to yet take into consideration the marketability of the apartment. If you’ve a neighbour with an identical flat with a short lease and your lease has been extended, any potential buyers would evidently rather view the one that does not need the hassle and expenditure of getting the lease extended.
There are several main milestone years in relation to the unexpired term:
80 years – as the unexpired term falls below eighty years a particular aspect, called marriage value, gets incorporated in the official valuation of an apartment. To appreciate how an apartment is valued, look at our item on that, but you should try to appreciate that marriage value becomes built-in in how surveyors assess how much lessees pay for a longer lease.
70 years – many mortgage lenders will not make loans on properties with leases this short. Lender policies differ on acceptable lease length; some are longer, several are shorter. Not only might it affect you if lessees are looking to buy such an apartment, but it has a considerable affect in the event that flat owners are selling one. Since a lot of properties are bought through mortgages, if many of your buyers cannot get one then the quantity of people who can buy your flat shrinks. With a smaller market, the value might be dragged lower.
60 years – hardly any solicitors would advise that their clientele purchase an apartment with a lease this short. If you are selling, your marketplace reduces further, dragging the price downward extensively. If you are selling, they may perhaps want to set aside the finances to extend the lease in order that you can attract buyers.
A word of caution in relation to where you get information in relation to lease length. While there are loads of superb managing agents and estate agents who appreciate leasehold matters, anecdotal experience suggests that several do not. Rather than aknowledging a lack of understanding, a considerable number may possibly be concerned about their own self interest and try to assure buyers and sellers that a short lease may not be a large hindrance. This is a specialist area and mistakes are expensive: one should think about getting advice from a qualified leasehold surveyor, solicitor or intermediary if you have any doubts or issues vis-à-vis residential property leases.
About the author
Andy Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. ALEP has upwards of one hundred members, each vetted before joining. They include solicitors, surveyors, intermediaries, managing agents and other professionals specialising in the topic of leasehold enfranchisement. Have a look at the searchable list of vetted members at http://www.alep.org.uk/membership/.
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