Mortgages: Lease Extension Issues

If you do not own the freehold interest on your property and are thinking about selling up

, then there are important issues that you must think about first.

This is the length of time remaining on your lease. At first glance, especially if there are a number of decades left to run on the lease, this may not appear to be a problem. However, it is most likely that your buyer will be looking to take out a mortgage on your property; therefore, a leasehold or lease extension may be necessary if, as with most people, they need to take out a mortgage to buy your property.

Having carried out research on all the main banks and building societies in England and Wales with regard to mortgages and leasehold extension, it is quite shocking to see what the majority of these lending institutions require if and when they are able to offer buyers a mortgage on a leasehold property. As the majority of mortgages run for a period of 25 years, you would think that this would be the minimum term required to run on the lease, but this is definitely not what happens in reality.

Research reveals that the vast majority of lending institutions require a period of at the very least 55 to 60 years to run from when the mortgage commences. However, there are some lending companies that go way beyond this: in fact, one mortgagor required a minimum of 70 years left to run on the lease before even considering granting a mortgage. Furthermore some lenders have even dropped out of the market in lending on leasehold property entirely. This is where you may well need to seriously consider if you need to extend a lease.

You also need to be aware that lease extension is always more expensive once the remaining period to run falls below 80 years. This is because when any lease drops below 80 years, an additional premium [which is known as the "marriage value"] has to be paid to the landlord, on top of usual fees, in order to extend a lease.

If there is a period of less than 60 years to run on your lease, you may well encounter problems when it comes to selling your property. From the outset, the estate agent entrusted to sell your property is highly unlikely to point out the issues connected with leasehold properties. They tend to solely focus on the sale and steer clear of getting involved in such pertinent matters. In fact it's quite remarkable how few estate agents know anything about leasehold extension.

It is not until a sale is subject to contract that this issue may rear its ugly head. The last thing you want is for a sale to fall through at this stage - but this is entirely possible if you fail to look into lease extension.

by: Tim Bishop

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