As one of the most stressful life events people have to face, buying a property is always going to take the cortisol levels up a notch or two, meaning that it can be tempting to avoid anything that stands to complicate things further than necessary, leaseholds included. However, it might not be possible to avoid.
"It’s estimated that there are nearly 5 million leasehold dwellings in England, according to the government," reveals Jack Malnick, managing director of Sell House Fast. "This means that leaseholds are responsible for between 15% and 20% of properties in the UK housing market."
Let our guide take some of the stress out of buying a house or flat with a leasehold – the experts we spoke to have all the advice you need to navigate the process smoothly.
Jack Malnick is a property expert with over 20 years of experience. Jack is the Managing Director and founder of Sell House Fast, a UK-based property-buying company specialising in quick, stress-free home sales. His vision is to make selling a home as easy as possible.
What is a leasehold?
First things first, what exactly is a leasehold and, more importantly, is it something to be worried about? This can be one of those confusing property terms that catches people out.
Mark Poole, property investing expert and founder of the online property publication, SmarterPropertyInvestment.com explains. "A leasehold property (almost always a flat, but you can still find some leasehold houses) means you do not own the building itself – for example the block of flats of which yours is one of – or the land upon which it is built. What you are buying is the right to live in the property for the remainder of the lease.
"At the end of the lease, if the leaseholder makes no effort to extend it, then the leasehold will revert to the freeholder (the person or business that owns the building itself and land upon which it sits)," adds Mark.
Dr. Mark Poole is a property expert with 20+ years experience and is founder of the online real estate publication, SmarterPropertyInvestment.com.
What kind of properties have leaseholds?
When buying a house, it is useful to know which types of property are likely to come with a leasehold so you can be sure you know what to look out for.
"Leasehold is most commonly associated with flats, because there is usually a shared building, roof, communal areas and services that need to be managed collectively," explains Paula Higgins, chief executive of HomeOwners Alliance.
"Houses can also be leasehold, although the sale of new-build leasehold houses has largely been banned," continues Paula. "You can still buy a leasehold house though, particularly where developers sold houses on this basis in the past. Shared ownership homes are usually leasehold too."
After spending 15 years reforming housing policy in government, enough was enough. Homeowners needed a voice and HomeOwners Alliance was born.
What is a good amount of time left on a leasehold?
While buying a leasehold property is not uncommon, you do need to ensure that there is a good length of time left on the lease before you buy.
"I would suggest at least 100 years remaining," says Mark Poole. "The key flexion point is 80 years. Once only 80 years are remaining, the cost to extend the lease incurs 'marriage value'. Marriage value is the perceived profit that is created on extending the lease and this must be split 50/50 between the freeholder and the leaseholder. Above 80 years remaining and the marriage value is considered to be zero. Properties with leases remaining of much less than 80 years also become harder to mortgage and, once you’re below about 60 years, the number of lenders will be very thin."
"The longer there is left, the better," says Paula Higgins. "A lease with 999 years, or several hundred years, is obviously preferable. But in any case, buyers should still check the ground rent, service charges, permission fees and restrictions in the lease."
"Leases of 99-125 years mean that you are unlikely to face mortgage complications, and you can avoid the monumental costs associated with extending it," points out Jack Malnick. "Lease extensions can cost up to £28,000 for a lease under 80 years, and this is before you even consider solicitor and additional fees.”
What should buyers do if there is not long left on the lease?
If you have found your dream property but discovered it has a short leasehold, what should you do? Does it mean you should find something else?
"Proceed very carefully and get specialist leasehold advice before committing," advises Paula Higgins. "A short lease is not always a reason to walk away, but it should affect the price you are willing to pay."
"There are a number of options here, depending on the willingness of the seller," picks up Mark Poole. "You could negotiate a discount equivalent to the cost of extending the lease, which would fall on you as the new owner once you complete the sale. You should get a professional valuation of how much this is likely to cost. In the past, you had to have owned the leasehold property for two years before you could extend the lease, but the recent Leasehold and Freehold Reform Act abolished this restriction, so you could apply for an extension upon completion of the purchase.
"Alternatively, you could negotiate that the seller extends the lease as part of the sale and make your offer conditional on this occurring, so that by the time you complete you have a freshly extended lease," adds Mark.
"You can find a specialist leasehold solicitor through HomeOwners Alliance for a free, no-obligation chat and quote," says Paula Higgins.
Can you have a leasehold removed?
Understandably, many people would prefer to own a property outright, but is removing a leasehold an option? If you want to renovate or alter the property in question, this may well be something you are keen to find out.
"You cannot simply 'remove' a leasehold, but in some cases you can buy the freehold. This is called enfranchisement," explains Paula Higgins. "For flats, leaseholders may have a joint right with other flat owners in the building to buy the freehold collectively, known as 'share of freehold' or 'collective enfranchisement'. Flat owners cannot buy the freehold of their individual flat alone; they usually need 50% of their neighbours willing to pay to do the same.
"Another option is to extend the lease," continues Paula. "Under current rules, qualifying flat owners can usually extend by 90 years. The Leasehold and Freehold Reform Act 2024 is intended to increase standard lease extensions to 990 years, but many parts of the reform are still not fully implemented, so buyers and owners should not assume the new rules already apply."
Is it hard to get a mortgage on a leasehold property?
Unless you are buying a house with cash, obtaining a mortgage on any kind of property can always be a bit of a minefield, and when it comes to those with leaseholds things have the potential to get even trickier. Bear in mind that you will typically need a lease of at least 85 years in order to get a mortgage.
"In all cases, you should ensure you can get financing on the property," says Mark Poole. "If you require a mortgage to be able to purchase it, you should obtain a professional opinion on the cost of the lease extension. Whilst online calculators can help, they tend to become less accurate the shorter the remaining lease is."
There are factors other than lease length that mortgage providers will want to check too, according to Paula Higgins. "Leasehold is not just about the number of years left. Buyers also need to understand the total package of costs. That means ground rent, service charges, buildings insurance, major works costs, reserve funds, permission fees and any restrictions on alterations, subletting, pets or running a business from home."
Is buying a leasehold house a good idea?
While leasehold houses (as opposed to flats) are rare these days, they do still crop up.
"Generally, buying a leasehold house is not ideal," says Paula Higgins. "With a leasehold house you will have to pay ground rent, seek permission for alterations, comply with lease restrictions and potentially pay to extend the lease or buy the freehold later. None of these charges or permissions apply to a freehold house.
"For a house, the key question is: why is it leasehold at all? Buyers should be especially wary of onerous ground rent clauses, permission fees, estate charges and restrictions on renovations or extensions," continues Paula. "That said, there are some situations where leasehold houses are more common, such as shared ownership homes, where the housing association is usually the freeholder, or houses on country estates. If the house is otherwise right, has a very long lease and low or no ground rent, it may still be worth considering – but only with proper legal advice and a price that reflects the tenure."
"In essence, it isn’t that different to buying a leasehold flat," adds Mark Poole. "However, since they are not that common, you may find your pool of potential buyers is less when you decide to move on. Conversely, if a leasehold house doesn’t put you off, you may find it cheaper to purchase than comparable freehold houses."
FAQs
What happens when a freeholder sells the property?
If you decide to buy a leasehold property, you have to accept that there may come a time that the freeholder will decide to sell it.
"If an existing freeholder wishes to sell, they must give the leaseholders the first chance to buy it," says Mark Poole. "This is known as the 'Right of First Refusal'. If you then acquire a share of the freehold, then you also assume all the obligations of being a freeholder (such as meeting fire regulations, insuring the property and so on)."
Will you have to pay ground rent on a leasehold property?
Ground rent and service charges are amongst the important details that can get overlooked in the excitement of buying a new home – yet it is incredibly important that you check these out. This information should be contained within the documents required to sell a house so make sure you obtain them.
"Leaseholders have to pay an annual fixed ground rent to the freeholder and this varies by location," says Mark Poole. "There is legislation in progress that seeks to cap this at a maximum of £250 per annum, with it reverting to a 'peppercorn' rent (effectively zero) after 40 years, although this is not expected to be in force until 2028. This has happened in response to the problematic issue of some ground rents doubling over a set interval, such as 5 or 10 years, making it difficult to mortgage or sell a house, trapping existing leaseholders."
Before buying any kind of property, leasehold or otherwise, make sure that you check any alterations were carried out to building regulations standards – the seller should be able to provide you with certificates to prove this. If the leasehold property is older, it may also be listed, so make sure understand listed building grades if you are viewing it with an eye to making some home improvements when you move in.
