Can I get a mortgage on short leasehold property?

getting mortgage on short leasehold property

Can I get a mortgage on a leasehold property?

Yes, it is possible to get a mortgage on a leasehold property with some important caveats:

1) The length of the term left on the lease.

2)  Whether it is possible to request a lease extension from the freeholder.

3) The cost of extending the lease term.

What is a leasehold property?

A leasehold property is a type of ownership in which the owner holds the right to use and occupy the property for a certain period of time, typically for a number of years, as specified in the lease agreement. The owner of the leasehold property does not own the land on which the property is built, but rather holds a lease or tenancy agreement with the owner of the land (the “lessor”).

Typically most modern lease terms, especially on New Build apartments, will range from 125 to 999 years. There are certain locations e.g. Chelsea in London, where lease extensions may only be extended for a shorter period i.e. 50 years.

When it comes to getting a mortgage on a leasehold property, the process is like getting a mortgage on a freehold property. You will need to meet the lender’s eligibility requirements, including having a good credit score and being able to demonstrate that you have the financial capacity to make the monthly mortgage repayments.

It is important to note that the terms of the leasehold agreement may effect your ability to get a mortgage on the property. For example, if the lease has a short remaining term, some lenders may be less likely to lend on the property. In addition, some lenders may have stricter lending criteria for leasehold properties, such as requiring a higher deposit or charging a higher interest rate (mainly due to restricted mortgage choice).

It is always a good idea to speak with a mortgage lender or mortgage broker to discuss your options and determine the best course of action for your specific situation.

What is a leasehold flat?

A leasehold flat is a type of property ownership in which the owner holds the right to occupy and use the property for a specified period of time, as stated in the lease agreement. The freehold is typically owned by the landlord who may be a company or a private individual. The leaseholder has the right to use the property for a specific number of years, as defined in the lease.

Leasehold flats are common in the UK where the property market is heavily regulated.

In a leasehold flat, the leaseholder is responsible for paying the Ground Rent to the landlord and abiding by the terms and conditions of the lease. The length and terms of the leasehold can vary and its important to consider these before proceeding with any purchase.

Is a leasehold mortgage more expensive?

It is not generally more expensive to obtain a mortgage on a leasehold property compared to a freehold property. The only way that the mortgage could become more expensive is due to lack of choice if the lease term is very short and below the minimum lease term of most major lenders. This will mean you do not have access to the most competitive deals on the market.

Lenders who will allow short lease properties would have priced their mortgage products at a rate above the market interest rate to attract business. This is because the lender is taking on the additional risk when lending on a leasehold property with a short lease. If the lease has a shorter term, it may be more difficult for the borrower to repay the mortgage. Additionally the borrower may be required to pay Ground Rent to the landlord for the duration of the lease, which can also increase the overall cost of the mortgage.

It is important for borrowers to carefully consider the terms of the lease and the potential costs associated with a leasehold mortgage before deciding to borrow.

Is a leasehold property a good idea?

Whether a leasehold property is a good idea depends on your individual circumstances and goals. Here are some things to consider:

Length of lease: The length of the lease is an important factor to consider when deciding whether a leasehold property is a good idea. If the lease has a long remaining term (e.g. 90 + years), it may be a good option. However if the lease has a relatively short remaining term (e.g. less than 25 years), it may not be as attractive, as you will have less time to recoup your investment.

Cost of the lease extension: The cost of any lease extension can also be an important factor to consider. If the lease extension is relatively inexpensive, it may be a good option. However if the lease extension is expensive, it may not be as attractive, as you may be unable to recoup the cost of the lease when you sell the property.

Restrictions on use: Some leasehold properties may have restrictions on how you can use the property. For example, you may not be allowed to make certain renovations or changes to the property without the landlord’s approval. These restrictions can be an important factor to consider when deciding whether a leasehold property is a good idea.

Resale value: The resale value of a leasehold property can also be a factor to consider. Some buyers may be less interested in purchasing a leasehold property, especially if the remaining term of the lease is relatively short. This can make it more difficult to sell the property in the future.

Overall, its important to carefully consider all of these factors before deciding whether a leasehold property is a good idea for you.

What make a leasehold different from a Freehold?

A leasehold is a form of property ownership in which a person or entity holds the right to use and occupy a piece of real estate for a specified period of time, as set forth in a lease agreement. The owner of the leasehold, known as the leaseholder, does not own the land or building outright, but rather holds a contractual right to use it for a certain period of time. At the end of the lease, the leaseholder must vacate the property.

On the other hand, a freehold is a form of property ownership in which a person or entity owns both the land and the building outright, with no time limits on their use or occupancy. The owner of the freehold, known as the freeholder, has full ownership rights to the property, including the right to sell or transfer it as they see fit.

There are some important differences between leasehold and freehold ownership:

  • Duration: Leasehold ownership is temporary and lasts for a specific period of time, as set forth in the lease agreement. Freehold ownership is indefinite and lasts as long as the owner desires.
  • Control: Leaseholders have limited control over the property they occupy, as they do not own it outright. Freeholders have complete control over their property, as they own it outright.
  • Transferability: Leaseholds can be transferred from one party to another, either through a sale or by assignment of the l Freeholds can also be transferred, but the process is typically simpler, as there is no need to transfer the lease.
  • Property rights: Leaseholders do not have the same property rights as freeholders. For example, they may not be able to make certain changes to the property or may be required to obtain the landlord’s permission to make changes. Freeholders have complete control over their property and can make any changes they desire.
  • Termination: Leaseholds can be terminated if the leaseholder violates the terms of the leasehold.

How much does a mortgage for a leasehold cost?

The cost of a mortgage for a leasehold property will depend on a number of factors, including the terms of the lease, the value of the property, and the lender’s requirements. Some lenders may be more hesitant to lend on a leasehold property due to the potential uncertainties that can arise with a leasehold arrangement.

To determine the cost of a mortgage for a leasehold property, you’ll need to shop around and compare rates and terms from various lenders. It’s also a good idea to work with a mortgage broker or lender who has experience with leasehold properties. They can help you understand the terms of the lease and any potential challenges or issues that may arise when applying for a mortgage on a leasehold property.

It’s also important to consider the costs associated with the leasehold arrangement, such as ground rent and any fees for maintaining common areas or facilities. These costs can add to the overall cost of the mortgage and should be taken into account when budgeting for your home purchase.

How do I extend the leasehold on my flat in the UK?

To extend the leasehold term on your flat in the UK, you will need to follow these steps:

  1. Check the terms of your current lease to see if you are eligible to extend it. There may be certain conditions that you need to meet, such as having lived in the property for a certain period and being up to date on your ground rent payments.
  2. Consider hiring a solicitor or conveyancer to help you with the process. They can provide legal advice and represent you in negotiations with the landlord or freeholder.
  3. Send a formal request to the landlord or freeholder to extend the You can do this by writing a letter or using a prescribed form provided by the government.
  4. Negotiate the terms of the extension with the landlord or freeholder. This may include the length of the extension, the amount of the premium (the amount you will need to pay to extend the lease), and any other terms or conditions.
  5. If you are unable to reach an agreement with the landlord or freeholder, you can apply to the First-tier Tribunal (Property Chamber) to determine the terms of the lease extension.

It is important to note that the process of extending a leasehold term can be complex and may take some time to complete. It is a good idea to seek legal advice and representation to ensure that your interests are protected.

How much does it cost to extend a leasehold in the UK?

The cost of extending a leasehold in the UK can vary significantly depending on a number of factors, including the length of the lease remaining, the value of the property, and the terms of the lease.

In general, the cost of extending a leasehold will include the following:

  • Lease extension premium: This is the main cost of extending a lease and is based on the value of the property and the length of the lease being extended. The premium is calculated using a formula set out in the Leasehold Reform, Housing and Urban Development Act 1993.
  • Professional fees: You will need to pay legal and valuation fees to help you with the process of extending your lease.
  • Ground rent: You may need to pay ground rent to the freeholder (the owner of the land your property is built on) as part of the lease extension process.
  • Service charges: You may also need to pay service charges to cover the cost of maintaining and repairing common parts of the building, such as the roof and external walls.

The total cost of extending a leasehold can range from a few thousand pounds to tens of thousands of pounds, depending on the circumstances. It is a good idea to seek legal advice and get a professional valuation to help you understand the likely costs involved in extending your lease.

Who should pay for a lease extension?

In the UK, the leaseholder is usually responsible for paying for a lease extension. This is because the leaseholder is the person who will benefit from the extended lease by being able to continue living in the property for an extended period of time. The cost of a lease extension is typically based on the value of the property and the length of the extended lease.

It is important for the leaseholder to obtain a professional valuation of the property before proceeding with a lease extension, as this will help to ensure that the cost of the extension is fair and reasonable.

How does a mortgage on a leasehold property work?

A mortgage on a leasehold property is a loan that is used to purchase a property that is held under a leasehold agreement. In a leasehold property, the owner of the property, known as the landlord or lessor, retains ownership of the land, while the individual or entity purchasing the property, known as the tenant or lessee, has the right to use and occupy the property for a specific period of time.

To obtain a mortgage on a leasehold property, the borrower must first find a lender who is willing to provide the loan. The borrower will then need to submit an application and provide the lender with financial and credit information, as well as documentation related to the leasehold property, such as the lease agreement and any other relevant documents.

The lender will review the application and, if approved, will provide the borrower with a mortgage offer, which includes the terms and conditions of the loan, such as the interest rate, the length of the loan, and the monthly payment.

Once the borrower accepts the mortgage offer, the lender will provide the funds needed to purchase the leasehold property. The borrower will then be responsible for making the monthly mortgage payments to the lender until the loan is paid off.

It’s important to note that the terms and conditions of a mortgage on a leasehold property may be different from those of a mortgage on a freehold property, as the lender will need to consider the terms of the leasehold agreement when determining the terms of the loan.

Why do mortgage lenders check the length of a lease in the UK?

Mortgage lenders in the UK typically check the length of a lease when considering a mortgage application for a property that is leasehold (as opposed to freehold) because the length of the lease can affect the value and marketability of the property.

A shorter lease may be considered less desirable to potential buyers, as it can be more difficult and expensive to extend or renew a shorter lease. Additionally, a shorter lease may mean that the property is subject to higher ground rent and other fees.

Lenders will typically want to ensure that the property has sufficient value and marketability before approving a mortgage, and the length of the lease can be an important factor in this assessment. In general, lenders will be more likely to approve a mortgage for a property with a longer lease, as it may be viewed as a more stable and secure investment.

It’s worth noting that the minimum length of a lease that a lender will accept may vary depending on the lender and the specific circumstances of the borrower. Some lenders may have more lenient requirements for lease length than others, so it’s always a good idea to shop around and compare mortgage offers from multiple lenders before making a decision.

Should I avoid short leasehold term properties in the UK?

It is generally advisable to consider the length of the leasehold term when purchasing a property in the UK, as a shorter lease can potentially have an impact on the value of the property and the ability to obtain a mortgage.

A leasehold property is a type of property in which the owner holds the right to occupy the property for a specified period of time, as set out in the lease agreement. The leasehold term refers to the length of time that the property can be occupied under the terms of the lease.

A shorter leasehold term may be less desirable than a longer term for a number of reasons. For example, the value of a property with a shorter leasehold term may be lower than a property with a longer term, as the property may be considered less desirable due to the potential for the lease to expire in the near future.

Additionally, lenders may be less likely to offer a mortgage on a property with a shorter leasehold term, as the property may be considered a higher risk due to the potential for the lease to expire.

Therefore, it may be wise to carefully consider the length of the leasehold term when purchasing a property in the UK, and to seek advice from a qualified professional if you have any concerns.

Should I buy a flat with a short lease?

It’s generally not a good idea to buy a flat with a short lease because it can be difficult to sell or borrow against in the future. When a lease has fewer than 80 years remaining, it can be difficult to get a mortgage or to sell the property because many lenders and buyers are hesitant to invest in a property that has a limited lifespan.

Additionally, a short lease can significantly decrease the value of the property. This is because a shorter lease means that the property will revert back to the landlord or freeholder at the end of the lease term. When the lease has fewer than 80 years remaining, the property’s value is likely to decrease significantly, which can make it a less appealing investment.

If you are considering buying a flat with a short lease, it’s important to carefully consider the potential risks and drawbacks before making a decision. It may be worth seeking the advice of a financial advisor or property professional before proceeding.

How much does a short lease devalue a flat?

The impact of a short lease on the value of a flat can vary, depending on the specific circumstances of the property and the local real estate market. In general, however, a short lease can potentially reduce the value of a flat because it may be less desirable to potential buyers or renters.

There are a few reasons why a short lease can be less appealing to buyers or renters:

  1. Financing difficulties: Some lenders may be hesitant to finance a property with a short lease because it may be considered a higher risk investment. This could make it more difficult for buyers to obtain a mortgage for the property.
  2. Limited resale value: A short lease means that the property will have a shorter period of ownership, which could limit its resale value.
  3. Leasehold reform: Changes to leasehold reform in the UK have made it more difficult for landlords to extend leases and this can also impact the value of a property with a short lease.

It’s important to note that the impact of a short lease on the value of a flat can vary significantly depending on the local real estate market and the specific circumstances of the property.

It’s a good idea to consult with a local real estate professional or appraiser to get a better understanding of how a short lease may affect the value of your property.

Can I get a mortgage on a short leasehold property?

It is possible to get a mortgage on a short leasehold property, but it may be more difficult to do so compared to a property with a longer lease. Lenders may be more hesitant to lend on a property with a short lease because the value of the property may decrease over time as the lease nears its expiration.

Additionally, the lender may require you to purchase a lease extension or a new lease before approving the mortgage.

If you are considering purchasing a short leasehold property, it is important to carefully consider the terms of the lease and any potential impacts on the value of the property. It may be helpful to speak with a mortgage lender or a real estate agent to better understand your options and to determine whether it is feasible to obtain a mortgage on a short leasehold property.

The information contained within this article was correct at the time of publication but is subject to change.

Related reading: Mortgages for holiday lets.

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Clive Read

Clive Read is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.

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