How Does Lease Length Affect The Price Of An Apartment?
By Andrew Szebeni
Go down below about ninety years and the notional worth of your flat falls continually faster each year, although initially only bit by bit. Without wanting to scare flat owners, the unexpired period reduces in time to nothing, when the freeholder can take possession of the flat. The positive side is this is exceptionally unlikely ever to occur. The down side is that you might need to invest in the lease extension to be sure it does not.
A hypothetical suburban flat with a lease outstanding of a year will be virtually worthless compared with a similar property with 100 years. After all, who would wish to procure a flat that they would have to hand over to someone else in around a year?
Leasehold specialists have the same opinion that an archetypal apartment having 80 years remaining on its lease would be worth 5% less than one with a lease much over 100 years. (The figures will vary depending on quite a few aspects however these can be used as a guide – you ought to seek advice from a specialist surveyor and you can find them on the web site of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years outstanding, it will have lost another 8% of its value so that it will be worth 13% less than a long-lease neighbour. Wait another 10 years until the unexpired term is 60 years and it will have lost 20% of its peak value. Looking at a flat of £200,000 with a long lease in suburban London, this would be worth £40,000 less when the lease has 60 years.
These figures do not yet take into consideration the marketability of the apartment. If you’ve a neighbour with an identical apartment with a short lease and your lease has been extended, any probable buyers would evidently rather view the one that will not require the trouble and outlay of getting the lease extended.
You’ll find several main milestone years when it comes to the unexpired term: 80 years – when the lease drops below eighty years a certain aspect, called marriage value, becomes incorporated in the technical valuation of a property. To understand how a flat is valued, look at our article on that, but you will need to recognize that marriage value gets included in how surveyors work out how much flat owners pay for a longer lease. 70 years – lots of mortgage lenders will not make loans on properties with leases this short. Lender guidelines contrast on acceptable lease length; a few are longer, a few are shorter. Not only might it affect you if you are considering buying such a flat, but it has a substantial affect in the event that flat owners are selling one. Since so many flats are purchased with mortgages, when lots of your buyers cannot get one then the quantity of people that can purchase your apartment drops. Having a smaller market, the price will be dragged lower. 60 years – hardly any solicitors might propose that their customers buy a flat with a lease this short. If you are selling, your market reduces further, dragging the value downhill considerably. If you are selling, you may possibly want to put aside the finances to make longer the lease so that flat owners can interest buyers.
A word of caution on where you get advice a propos lease length. Whilst there are numerous excellent managing agents and estate agents who appreciate leasehold matters, anecdotal experience suggests that several do not. Rather than aknowledging a lack of expertise, a major number might consider their own self interest and make an effort to win over buyers and sellers that a short lease may not be a large setback. This is a specialist subject and mistakes are costly: flat owners should think about getting advice from a qualified leasehold surveyor, solicitor or intermediary if you have any doubts or concerns on the subject of residential property leases.
Andrew Szebeni works with the Association of Leasehold Enfranchisement Practitioners. ALEP has more than 100 members including surveyors, managing agents and solicitors. Advice on extending your apartment’s lease.