Buy-to-let really took off in 1996, with the introduction of special mortgages for people who wanted to become a landlord. The expectation was that their investment would be successful enough to cover the costs of the property through the years and, eventually, provide capital for a comfortable retirement.
There are now over 2.5million landlords in the UK and many have multiple properties in a portfolio. Within that figure are many property investors who own leasehold properties – especially flats. In this arrangement, a freeholder has complete control over the building and owns the land on which it sits. If a landlord is a leaseholder, it means the freeholder has sold the rights to a property for a particular period – known as the lease.
When an investor buys a leasehold property, they will be told how long the lease is for. It can be for as long as 999 years but is typically in the region of 125 years. As soon as completion is reached, the lease starts ticking down and here is where problems can arise, as LandlordBuyer explains.
If a lease has less than 80 years left, it is generally considered a short lease and to many, this is a ‘red flag’ warning sign. Why? A short lease means the property’s value falls every day the lease is not extended, making it unappealing to any buyer – whether they’re a tenant looking to purchase where they live or another investor looking to add to their buy-to-let portfolio. Making matters worse are mortgage lenders, who typically won’t lend against a property with a lease of less than 75 years.
Cough up & pay for an extended lease
If the landlord has owned the property for two years or more, they are entitled to demand a 90 year extension to be added to their existing lease from the freeholder. In January 2021, the Government announced that the lease extension process and costs will change so leaseholders in England will be given a new right to extend their lease by 990 years at zero ground rent.
Although this is good news like many Government initiatives, a full timetable detailing when these measures will be put into force has yet to be set out, and there are no indicative costs. For now, extending a lease remains a potentially expensive and legally complex exercise.
Borrow to buy your freehold
If you like the idea of owning the building and the land on which your property sits, you could ask to buy the freehold. It’s not a straightforward process, however. If you don’t have the funds available to do this, you’d need to get a loan or look into re-mortgaging to raise the capital. It’s also worth noting that, by law, at least half of the leaseholders in the building must come together to purchase the freehold. With these conditions attached, you may find that buying the freehold is impossible.
Sell with a short lease
High Street estate agents will always tell those with a short lease that their property will be difficult to sell on the open market. It’s true - a short lease will put purchasers off as they’ll have to factor in the cost of extending the lease themselves. Selling on the open market can be a vicious circle too, as little interest can equal a long time on an estate agent’s books and the property will be losing value daily.
You can sell a flat with a short lease to LandlordBuyer for cash and very quickly too. As professional buy-to-let purchasers, we consider all properties – even those with the shortest of leases. We’ll make you a speedy cash offer for your short lease flat – why not start the process and request a valuation now? When selling to LandlordBuyer, you’ll avoid risking the open market and will stop the devaluation of your property in its tracks. We can also offer you completion in as little as seven working days – even if you have sitting tenants or rent arrears. Tell us about your short lease property by contacting us today.