There are a number of questions that arise when it comes to leasehold properties and the potential for equity releases. The biggest of these is often whether or not an equity release company will accept leasehold properties at all and the answer can be quite complicated, depending on the individual situation.
In the UK, there are roughly 2 million properties that are owned on a leasehold basis. These leases are originally set up for either 99 years or upto 999 years. Those properties that are older typically have leases that are set up to expire in 999 years. Newer properties typically have shorter lease terms and arrange 99 year leases. When it comes to equity release schemes, providers typically require that there be at least 75 unexpired lease years left in order to qualify for an equity release mortgage on the property.
Some companies even require 80 or 90 years to be remaining on the lease, dependent on the age of the youngest applicant. For obvious reasons, those leases that were originally set up for 999 years should have no problem qualifying for an equity release scheme because they don’t run the risk of expiring during the borrower’s lifetime. The only issue could arise around the ground rent, which must be upto date & paid to the freeholder accordingly. This will need to be proven at application/legal stage of the process & can usually be evidenced by the last receipt for payment from the administrator on behalf of the freehold company, or a letter from them confirming the leasehold payments are upto date.
The reducing term on London leaseholds can rather significantly affect the overall value of the property. So for many, the biggest concern is when the lease has fewer than the necessary 75 years left. This most typically occurs when dealing with a lease that was originally made out for 99 years. For the purposes of many equity releases, this is the situation where the most issues and problems may arise. If the remaining lease years fall below the minimum set by the applicable lender, there are a few possibilities that can be pursued. The first of these possibilities is to extend the lease terms for a term of 90 years in addition to the unexpired term remaining. The second possibility is to buy the London freehold yourself. You can make this work simplest by purchasing the freehold from the proceeds made during the application for equity release.
The benefits of both of these possibilities are twofold. First, you will obviously be ensuring that you now qualify for an equity release scheme in London. Secondly, you will be adding value to your London home or property. The overall property value in question can be impacted as the lease terms decrease. This can be especially important for those leaseholds that are in London and typically are more expensive.
The price differential between properties with a short term lease in London versus that of a property with a long term lease can be quite substantial. Having experience of extending London leases we have occasions where the freeholder has demanded £400,000 for the leasehold extension! Nevertheless, the upside of the London lease extension was that by utilising an equity release plan to fulfil this, the property value itself increased by more than the £400,000. Needless to say the beneficiaries were more than pleased!
The process for extending or purchasing a lease can seem like it would be relatively complicated. However, the legal paperwork that is involved is generally very straightforward. All of the paperwork can even be completed by the same solicitor who is working on behalf of the client seeking an equity release. However, it is always advisable to speak with your landlord or managing agent to determine their particular costs for extending a London lease. You will be able to gauge if those costs seem excessive by your standards. Should they seem to be too much, you can always consult with neighbours who have also extended their leases to see if their costs were comparable. Lastly, there are a variety of calculators available online to help consumers estimate the costs they are likely to incur by trying to extend their leases. These calculators can be quite helpful and can even help the average consumer to better negotiate with their landlord or managing agent. Consumers should be mindful of other costs they may incur along the way to extending their lease, namely service charges. These service charges are usually determined by the freeholder or their agent and the charges will include maintenance fees, as well as the cost to have any work done.
Once a property reaches 50 or fewer years left on the London lease terms, its value can deteriorate quite dramatically and quickly. For those in retirement and in this situation, it may not feel entirely necessary to extend lease terms due to life expectancy. However, when this takes place it is important to take into account the opinions of the children involved, as they may have an opinion as to whether the lease terms are extended or not. Many of the choices that homeowners make will directly affect the inheritance given to their children. That being said, determining whether or not to pursue the extension of a lease term and to subsequently try and qualify for an equity release scheme can be a family decision rather than an individual one.
Equity releases have become more problem solving in today’s world than how they were originally designed, which was primarily lifestyle changes rather than functional uses such as extending London leases. However, for people in the London area & with property values back on the increase now is an excellent time to consider extending or purchasing your London lease.
Call 0800 678 5159 for further details on London leasehold extensions.