Stuart Bowman
2-minute read
Last updated:
September 29, 2020
Let's tell you if you can get a mortgage after a quick look at your circumstances
It's really easy to take that first step to getting a mortgage.
Get StartedIf you buy a freehold property, you own the building you're buying and the land it stands on, forever. This makes you the freeholder. If you buy a leasehold property, you’re essentially leasing the property from the freeholder for a period of time.
Leaseholds are fairly common. According to the Ministry for Housing, Communities and Local Government there are 4.3 million leasehold homes in England. Just over two-thirds are flats and almost a third houses.
Another way to look at is that 54% of flats are leasehold, while 7% of houses are leasehold.
Also, due to the Civil Aviation Act 1982 if you are the freeholder, you also own the airspace above your property - up to 500 foot.
Mortgage applications for freehold properties tend to be a little more straightforward.
Of course, like I said there’s nothing prohibitive or uncommon about leaseholds, so if you really love the house, never let the simple fact that it’s a leasehold stop you.
Leases themselves aren't an issue – it's short or bad leases that are the issue.
Generally speaking, the shorter the lease, the more problems you’ll have when it comes to reselling. Some mortgage providers won’t lend on properties with less than 80 years left on the lease.
Extending the lease can be pricey, so sometimes vendors will try and sell before they have to extend. If you’re looking at properties with a relatively short lease (~80 years or less), make sure you factor in the cost of extending the lease in the near future before you make an offer.
Every mortgage lender is different, but in general, you'll struggle to get a deal if the lease has less than 70 years, but even some mainstream lenders, such as Santander, do offer mortgages on such properties.
If you let your lease run out completely the property would cease to be yours, and ownership would revert to the freeholder.
As you’ll want to avoid this, you can apply to extend your lease once you’ve owned the property for two years. If you own a flat, you can extend your lease by 90 years, and if you own a house, you can extend the lease by 50 years.
The closer you get to the end of the lease, the more expensive it will become to extend and the more difficult it will get to recoup those costs when you sell, so make sure you’re aware of how long is left on the lease before you buy.
As well as short leases, some leases with high ground rents can make it difficult to sell the property.
The recent leasehold scandal saw about 12,000 leaseholders subject to ground rent that doubled every decade. These terms were often sneakily written into contracts.
Now, however, all leading property developers and freeholders have signed a pledge to eradicate this practice for all existing and future leaseholders.
However, this is not mandatory so be sure to double check with your conveyancer!
Here's a few other articles you may find useful.
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