Leasehold - I don't really get it?
Discussion
So this will probably seem like a massively stupid question to the knowledgable folk here on PH, but I just don't really get leasehold - We're looking at buying a flat, now the majority we see are leasehold, I know the difference between this and Freehold, obviously freehold is a better prospect but from my dim perspective it seems like buying a leasehold property is just plain stupid - Surely you're buying a depreciating asset which is the one thing you'd hope (recession aside) a property would not be...
So for example a flat we've found is £120k with a 125 year lease... In ten years time isn't the fact that it's now only a 115 year lease going to devalue the property considerably and make it far less attractive to any perspective buyer? To my eyes this would be to the considerable detriment of any growth in value from inflation and market growth etc in those ten years? At what point does a lease cease to be attractive at all? If the flat we're interested in was on a 100 year lease now would it be worth 20% less than it is now?
Saying all of this, the majority of flats on the market seem to be leasehold, so most people who live in flats own a lease not a property, so it really can't be as stupid an option as it seems to this uninformed chap.
Is it as simple as this? A leasehold is some midway point between giving all of your money away in rent and paying off an appreciating piece of land with bricks and mortar atop it? If not then please tell me where i'm going wrong here?
So for example a flat we've found is £120k with a 125 year lease... In ten years time isn't the fact that it's now only a 115 year lease going to devalue the property considerably and make it far less attractive to any perspective buyer? To my eyes this would be to the considerable detriment of any growth in value from inflation and market growth etc in those ten years? At what point does a lease cease to be attractive at all? If the flat we're interested in was on a 100 year lease now would it be worth 20% less than it is now?
Saying all of this, the majority of flats on the market seem to be leasehold, so most people who live in flats own a lease not a property, so it really can't be as stupid an option as it seems to this uninformed chap.
Is it as simple as this? A leasehold is some midway point between giving all of your money away in rent and paying off an appreciating piece of land with bricks and mortar atop it? If not then please tell me where i'm going wrong here?
milfordkong said:
So this will probably seem like a massively stupid question to the knowledgable folk here on PH, but I just don't really get leasehold - We're looking at buying a flat, now the majority we see are leasehold, I know the difference between this and Freehold, obviously freehold is a better prospect but from my dim perspective it seems like buying a leasehold property is just plain stupid - Surely you're buying a depreciating asset which is the one thing you'd hope (recession aside) a property would not be...
So for example a flat we've found is £120k with a 125 year lease... In ten years time isn't the fact that it's now only a 115 year lease going to devalue the property considerably and make it far less attractive to any perspective buyer? To my eyes this would be to the considerable detriment of any growth in value from inflation and market growth etc in those ten years? At what point does a lease cease to be attractive at all? If the flat we're interested in was on a 100 year lease now would it be worth 20% less than it is now?
Saying all of this, the majority of flats on the market seem to be leasehold, so most people who live in flats own a lease not a property, so it really can't be as stupid an option as it seems to this uninformed chap.
Is it as simple as this? A leasehold is some midway point between giving all of your money away in rent and paying off an appreciating piece of land with bricks and mortar atop it? If not then please tell me where i'm going wrong here?
I think your placing too much weight on the lease aspect.So for example a flat we've found is £120k with a 125 year lease... In ten years time isn't the fact that it's now only a 115 year lease going to devalue the property considerably and make it far less attractive to any perspective buyer? To my eyes this would be to the considerable detriment of any growth in value from inflation and market growth etc in those ten years? At what point does a lease cease to be attractive at all? If the flat we're interested in was on a 100 year lease now would it be worth 20% less than it is now?
Saying all of this, the majority of flats on the market seem to be leasehold, so most people who live in flats own a lease not a property, so it really can't be as stupid an option as it seems to this uninformed chap.
Is it as simple as this? A leasehold is some midway point between giving all of your money away in rent and paying off an appreciating piece of land with bricks and mortar atop it? If not then please tell me where i'm going wrong here?
The lease only really starts to become an issue when mortgage lenders won't lend on it because it is too short. For reference most lenders will want a minimum of around 55 years left on the lease at the outset of a mortgage or at least 30 years left at the end of the mortgage term. So the difference between a 125 and 110 year term is negligible, certainly not 20% difference!
The problem with flats is that someone needs to take responsibility for maintenance of the shared areas (things like the roof) - with leasehold, there's a landlord who has contracts with all the tenants which make responsibilities clear.
If you don't have a mechanism like that, then you need a management company which can force tenants to contribute - as long as they actually sign up to it.
Freehold is fine if you own the whole property, but not if you have to depend on the neighbours paying their share of maintenance costs.
Leases which are nearing the end of their term are a problem, though.
If you don't have a mechanism like that, then you need a management company which can force tenants to contribute - as long as they actually sign up to it.
Freehold is fine if you own the whole property, but not if you have to depend on the neighbours paying their share of maintenance costs.
Leases which are nearing the end of their term are a problem, though.
I would say its justified to have reservations when looking at leased properties.
Its best to find out who the managing agent is, how much ground rent/insurance is and even how much they charge for replying to a letter. As in my experience, albeit limted, most of these companies are a nightmare to deal with.
You will most likely have issues when it comes to selling it as the majority of buyers, especially FTBs, are overly cautious. Leases scare them especially when you hear some of the horror stories of what it costs to extend.
If you can try and hold out for a share of freehold property.
Its best to find out who the managing agent is, how much ground rent/insurance is and even how much they charge for replying to a letter. As in my experience, albeit limted, most of these companies are a nightmare to deal with.
You will most likely have issues when it comes to selling it as the majority of buyers, especially FTBs, are overly cautious. Leases scare them especially when you hear some of the horror stories of what it costs to extend.
If you can try and hold out for a share of freehold property.
Excellent replies everybody thanks, makes things a little clearer at least.
The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
milfordkong said:
Excellent replies everybody thanks, makes things a little clearer at least.
The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
Why do you say that?The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
Whether a leasehold property or freehold makes more sense isn't simply down to the fact that it's L/H or F/H.
As long as you know what your outgoings are on a L/H apt (ground rent, Service Charges and your mortgage) then it's simply maths no?
I'd rather have a L/H flat in Chelsea than a F/H house rented out in Hakin (sorry all you good folk in Hakin) for example.
As long as your income meets your buy to let requirements (assuming there's a mortgag on the property). You've got more chance with the flat in chelsea for capital growth, rental demand and growth, a market for selling the apartment, find a mortgage firm happy to lend on it than you ever will in West Wales.
I think you should re-assess why you've said that and why you believe it.
In fact - I'd rather have a L/H flat than a freehold flat (assuming it's in a block of apts) as sorting out the communal areas, the building, the roof, the upkeep, the communal gardens would be a nightmare if you didn't have that (it's all done through the management company of course but you catch my drift).
Assuming you have a correctly worded L/H you'll have an automatic to renew anyway once your lease runs down to 25 years.
Edited by Oi_Oi_Savaloy on Tuesday 17th July 17:35
Sarnie said:
I think your placing too much weight on the lease aspect.
The lease only really starts to become an issue when mortgage lenders won't lend on it because it is too short. For reference most lenders will want a minimum of around 55 years left on the lease at the outset of a mortgage or at least 30 years left at the end of the mortgage term. So the difference between a 125 and 110 year term is negligible, certainly not 20% difference!
Also worth mentioning to the OP that you can extend the term of the lease. Advice I've received on this issue has all centred round the 80 year mark. I've just dipped under that, so am in the process of a 99 year extension. Toss up between spending the money now to secure a more saleable (and mortgageable) asset, or risking future purchasers stiffing you on the asking price when they realise they need to buy an extension themselves. Fun!The lease only really starts to become an issue when mortgage lenders won't lend on it because it is too short. For reference most lenders will want a minimum of around 55 years left on the lease at the outset of a mortgage or at least 30 years left at the end of the mortgage term. So the difference between a 125 and 110 year term is negligible, certainly not 20% difference!
Oi_Oi_Savaloy said:
I think you should re-assess why you've said that and why you believe it.
This is excellent information thanks, I know it makes perfect sense to you but to me and perhaps stupidly I was finding it tough to get my head around the economics of it. I'm very new to property and was clearly looking at it in a naive and basic way.It's certainly not Chelsea, but it's a popular and affluent market town and is close to a mainline station an hour from London so i'd imagine it will have good scope for growth and rental demand.
hornet said:
Also worth mentioning to the OP that you can extend the term of the lease. Advice I've received on this issue has all centred round the 80 year mark. I've just dipped under that, so am in the process of a 99 year extension. Toss up between spending the money now to secure a more saleable (and mortgageable) asset, or risking future purchasers stiffing you on the asking price when they realise they need to buy an extension themselves. Fun!
Useful information too, thanks Hornet!milfordkong said:
This is excellent information thanks, I know it makes perfect sense to you but to me and perhaps stupidly I was finding it tough to get my head around the economics of it. I'm very new to property and was clearly looking at it in a naive and basic way.
It's certainly not Chelsea, but it's a popular and affluent market town and is close to a mainline station an hour from London so i'd imagine it will have good scope for growth and rental demand.
Milford - it's difficult sometimes to ensure the tone I say something in my mind is conveyed adequately on paper. I certainly didn't want to come across as pushy or anything. I just wanted to try and ensure that you don't miss a flatted opportunity that you might have dismissed just because you're a firm believer in F/H above all else. It's certainly not Chelsea, but it's a popular and affluent market town and is close to a mainline station an hour from London so i'd imagine it will have good scope for growth and rental demand.
What it really boils down to is this - will the property I buy be in demand, at a rent income level that means I can make some money, satisfy my mortgage provider, and give me the possibility of rental growth and capital growth over a period of time? There are opportunities out there. How do you uncover these oppo's? By getting to know an area really well, know whom your typical rental bods are, what they pay, what they are looking for, then visit some agents, and once you've met a couple of agents you like then I'd try to actually establish a relationship with these people. Try to differentiate yourself from every other buy to let investor.
Get your mortgage and or money squared away so you're in a position to move decisively. If it was me and I wanted to buy a property I'd be speaking to someone with Rightmove plus (an agent or something); getting them to search for 1 bed apts up to your set budget that have been on the market for more than a year. Then I'd be firing some offers in left, right and centre. You'll get a bite and if not; then just keep going. Look at auctions, keep an eye on the local borough's planning applications (so you can approach the builder and get in early) - you've got to find the angle that allows you to get an edge on the local market. You've got to buy well or your investment is f
ked from the outset. Perhaps you can't afford the area you really like - is there an area nearby that is due to have a new train station or service or significant investment? Is there a large company investing or due to invest in the area - you've got the think laterally. Got to find the edge. otherwise you'll just be like all the other lemmings. Then work the maths. Don't fudge it. make sure you take into accout that the income is taxed. Engage Eric Mc (I do) for your tax return - he's brilliant and very knowledgable and approachable. Ensure you know all your outgoings - set up a spreadsheet etc etc. Work the opportunity. Get an understanding of the mortgage market and mortgage finance - if you buy well, you might find you're able to re-mortgage and go again. But caveat that with - be careful with re-mortgaging and going again!
Oi_Oi_Savaloy said:
Milford - it's difficult sometimes to ensure the tone I say something in my mind is conveyed adequately on paper. I certainly didn't want to come across as pushy or anything. I just wanted to try and ensure that you don't miss a flatted opportunity that you might have dismissed just because you're a firm believer in F/H above all else.
What it really boils down to is this - will the property I buy be in demand, at a rent income level that means I can make some money, satisfy my mortgage provider, and give me the possibility of rental growth and capital growth over a period of time? There are opportunities out there. How do you uncover these oppo's? By getting to know an area really well, know whom your typical rental bods are, what they pay, what they are looking for, then visit some agents, and once you've met a couple of agents you like then I'd try to actually establish a relationship with these people. Try to differentiate yourself from every other buy to let investor.
Get your mortgage and or money squared away so you're in a position to move decisively. If it was me and I wanted to buy a property I'd be speaking to someone with Rightmove plus (an agent or something); getting them to search for 1 bed apts up to your set budget that have been on the market for more than a year. Then I'd be firing some offers in left, right and centre. You'll get a bite and if not; then just keep going. Look at auctions, keep an eye on the local borough's planning applications (so you can approach the builder and get in early) - you've got to find the angle that allows you to get an edge on the local market. You've got to buy well or your investment is fked from the outset. Perhaps you can't afford the area you really like - is there an area nearby that is due to have a new train station or service or significant investment? Is there a large company investing or due to invest in the area - you've got the think laterally. Got to find the edge. otherwise you'll just be like all the other lemmings.
Then work the maths. Don't fudge it. make sure you take into accout that the income is taxed. Engage Eric Mc (I do) for your tax return - he's brilliant and very knowledgable and approachable. Ensure you know all your outgoings - set up a spreadsheet etc etc. Work the opportunity. Get an understanding of the mortgage market and mortgage finance - if you buy well, you might find you're able to re-mortgage and go again. But caveat that with - be careful with re-mortgaging and going again!
At what point has he ever said he is a BTL investor?What it really boils down to is this - will the property I buy be in demand, at a rent income level that means I can make some money, satisfy my mortgage provider, and give me the possibility of rental growth and capital growth over a period of time? There are opportunities out there. How do you uncover these oppo's? By getting to know an area really well, know whom your typical rental bods are, what they pay, what they are looking for, then visit some agents, and once you've met a couple of agents you like then I'd try to actually establish a relationship with these people. Try to differentiate yourself from every other buy to let investor.
Get your mortgage and or money squared away so you're in a position to move decisively. If it was me and I wanted to buy a property I'd be speaking to someone with Rightmove plus (an agent or something); getting them to search for 1 bed apts up to your set budget that have been on the market for more than a year. Then I'd be firing some offers in left, right and centre. You'll get a bite and if not; then just keep going. Look at auctions, keep an eye on the local borough's planning applications (so you can approach the builder and get in early) - you've got to find the angle that allows you to get an edge on the local market. You've got to buy well or your investment is f
ked from the outset. Perhaps you can't afford the area you really like - is there an area nearby that is due to have a new train station or service or significant investment? Is there a large company investing or due to invest in the area - you've got the think laterally. Got to find the edge. otherwise you'll just be like all the other lemmings. Then work the maths. Don't fudge it. make sure you take into accout that the income is taxed. Engage Eric Mc (I do) for your tax return - he's brilliant and very knowledgable and approachable. Ensure you know all your outgoings - set up a spreadsheet etc etc. Work the opportunity. Get an understanding of the mortgage market and mortgage finance - if you buy well, you might find you're able to re-mortgage and go again. But caveat that with - be careful with re-mortgaging and going again!
milfordkong said:
Excellent replies everybody thanks, makes things a little clearer at least.
The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
I skim read this post of Milford's, saw investment and jumped to conclusions. Apologies Sarnie. The problem we've got is that whilst we could buy a house instead, we'd really rather live in a flat at this point in our lives, but it seems they really do make less sense than a house as an investment or asset.
If you take out the Buy to Let words of my post - I stand by my thoughts for anyone buying property. In order to buy well, you have to find an edge or an angle. Otherwise you'll always pay top dollar for something.
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