Row of traditional colourful houses in England

When buying a leasehold home, the rule of thumb is to look for a property that has at least 83 years left on the lease. However, across the capital, it’s not unusual to find buyers being enticed by much shorter leases – usually because of the lower-than-average price attached to it. All over London, people taking a financial gamble on short leases to get onto the property ladder in a desirable area they might usually be priced out of… but is it worth it?

What’s the problem with a short lease?

There are a number of reasons to be wary of a lease shorter than 83 years.

Firstly, once a lease has fewer than 80 years remaining, the cost of extending its term has to include ‘marriage value’ – half of the increase in value associated with the property having a longer lease. This makes the process significantly more expensive as the lease continues to get shorter past this point.

Even if you move into a home with 80 years on the lease, you are not legally eligible for an extension until you have lived in the property for 2 years, meaning that marriage value will still be due by the time you extend.

Of course, you may find that properties with a lease of substantially less than 80 years are much cheaper than similar homes on the market with a longer lease. However, you should be aware that many lenders will be reluctant to provide a mortgage once the lease drops below 70 years, and it is virtually impossible to find one that will help you buy a property with less than 60.

Extending a lease

Any home owner with 82 years left on their lease should address the possibility of extending their term by 90 years. Not only will it save them thousands of pounds later down the line, but also make their home more valuable (and appealing to buyers) when the time comes to sell.

After 2 years of owning a property, leaseholders have a statutory right to extend the term of their lease by 90 years. This is done by serving a ‘Section 42 Notice’ to their landlord.

If you are about to buy a property with 82 years left to run, you can request that the current owner begins the formal process of extension. Once you move in, you can become the beneficiary (although it will cost you, not the vendor).

In both cases it is essential that the applicant has an experienced surveyor to negotiate with the landlord, and a conveyancer who can handle the lease extension application.

Other advice for buying property with a short lease

  • Be prepared for your mortgage lenders to require that you arrange a lease extension with the vendors.
  • Negotiate a discount on the asking price.
  • Speak to a surveyor to obtain an estimate for the lease extension cost.
  • Investigate the possibility of purchasing the freehold along with the other tenants in the building (called ‘enfranchisement’).
  • Contact the freeholder for an informal lease extension agreement before you have lived there for two years.

Before committing to a property with a short lease, contact our team at Daily Move to see how our experienced conveyancers and surveyors can help you achieve the best deal. For a free, no-obligation consultation, call us on 0845 862 2275 or use our contact us page to send us an email.