When is a landlord not a landlord? Well the obvious answer is when they are a leaseholder.
There are over 2 million leasehold properties in the UK and the majority are found within the private rental sector. If you are buying a property in London or in a city centre across the UK invariably you will only be buying the lease and not the freehold. A recent survey by e.surv highlighted that there are potentially 1.43 million leasehold homes in the UK that are at risk of becoming un-mortgageable. This could leave the property owner in negative equity as a result of shortening leasehold terms.
What does buying a leasehold mean?
A leaseholder does not own the land on which their building is located. This means they have to pay a ground rent to the freeholder. In addition they can’t do what they want with their property without first gaining permission from their landlord (the freeholder).
I have a friend with a daughter that owns a ground floor flat in Stoke Newington. Having looked at moving to a house Emma has quickly realised that the cost of £600k to buy even a modest 2 bed house is not a financial goer, so instead she is looking at a basement conversion. The construction costs are about a £100k but potentially the works will double the floor area of her 2 bed apartment. The stumbling block is that as only a leaseholder or ‘lessee’ she will first have to get her landlord (freeholder’s) permission. This generally can’t be unreasonably withheld but it will cost. At this point a landlord soon realises who has the whip hand.
Free advice on leaseholds
The land law system in the UK is longstanding dating back to medieval times and is extremely complex. Currently, only about 2 thirds of land is registered.
One issue in owning a leasehold property is the risk of being overcharged on service charges by the freeholder. Have a look at my recent experience when looking at a leasehold property and the staggering increases in management charges being faced by many leaseholders.
Extending a lease
Another issue faced by leaseholders is the depletion of their lease over time. Once below about 80 years, there will be an increasingly limited BTL re-mortgage choice and the leasehold value of the property will start to reduce. Once the leasehold length drops to below 65 years the property is practically unmortgageable, as no mortgage company will remortgage it.
The obvious thing for a BTL landlord to do is to protect the value of their property investment by extending the length of the lease. There is plenty of free advice on lease extensions relating to extending leases and leasehold enfranchisement which creates a new class of property ownership called commonhold.
If you want free expert advice try asking a question in our forum.
If you want an expert to manage the process for you have a look at Property Hawk lease extension website to get a free quote.