Some think you should steer clear of a leasehold property. The fact that you are paying to purchase a property but won't actually own the bricks and mortar can put some people off. But, if you are living in a city centre, it is unlikely that you'll be able to purchase a property that isn't a leasehold tenure because many of the properties in a city will be apartments, either in purpose-built blocks or above commercial premises.
But should you shy away? Is there any reason that you should not consider buying a leasehold property?
The critical difference between leasehold and freehold properties is the actual ground below your property. When a property is leasehold, the ground below the building is not owned by you when you buy the property. Conversely, when you purchase a freehold property, you also purchase the land below the property. This would mean that if your property fell down or was destroyed somehow, you would still own the land, whereas if this were to happen with a leasehold property, you wouldn't. Of course, this is a rather extreme way to describe it, but it makes the point.
A leasehold property is perfectly saleable and safe to purchase, but there are a few key things that you need to know about the property before you go ahead with an offer.
Term- The term is the time that remains on the lease agreement. It is essential to note the remaining years because there will come a point within the term that may affect your ability to take a mortgage out on the property. As the length of the remaining term reduces, mortgage lenders will deem the property less valuable. This is predominantly down to the unknowns involved with renewing a lease agreement. A lender is looking for the loan to be fully paid off, with plenty of remaining term left on the lease to protect them and the loan amount. As a result, raising mortgage funds on the property can become challenging as the lease term diminishes. If you were to stop paying your mortgage and the lender needs to repossess the property, they might struggle to recover enough in the sale of the property to repay the outstanding amount of the loan. With this in mind, you should find out the length of the remaining term before making an offer. If there is less than 60 years or so, then it would be wise to ask about the options for renewing that lease when the current one expires so that you know what will happen at the end.
Fees- A leasehold property usually has some fees to pay, either annual ground rent or a monthly management fee. This information will depend very much on the terms of the leasehold agreement and whether the building is maintained by a management company.
What is covered in the leasehold agreement- Leasehold agreements are varied and can often include clauses that either force the residents to do something or prohibit them from doing something, so you must know what the agreement says before you make an offer. For example, you may be unable to have pets in the building or run a business from there, which could have a knock-on effect on you living there later. Likewise, some things may be included in the management fees, such as building insurance or window cleaning, meaning that these monthly expenses would not be payable whilst you live there.
Make sure you understand what you are getting yourself into, and establish these points before making an offer. Leasehold properties can be an excellent option with lower maintenance and many costs included in the management fees.
If you are looking to buy a leasehold property and have questions about the lease and how it will affect you, contact our team of property experts today.
