The difference between a leasehold and a freehold property in London may have escaped you in the excitement of buying your dream home. But many leasehold owners get a nasty shock when the lease dips below 80 years and the value of their investment plummets.
The difference between leasehold and freehold properties. What you need to know:
Freehold: You own the property and the land on which it stands. There's no time limit to how long you can own the property and land.
Leasehold: You own the property for a certain number of years, but not the land on which it stands. You're required to pay an annual ground rent to the landlord, and when the lease expires, ownership reverts back to the freeholder (landlord). The property can be bought and sold any number of times within the period of the lease, but the length of the initial lease remains the same. It's possible to extend the lease, but it can be costly.
The majority of flats in London are sold leasehold, and the length of the lease varies. Typical lease lengths are: 99, 125 (if ex-local authority), 500 and 999 years.
What is the 80 year rule?
Once the lease of a property dips below 80 years, not only does its perceived value drop, the lease becomes more costly to extend. And banks and building societies may refuse to provide a mortgage. That's because mortgage lenders like there to be at least 50 years left after a mortgage has been paid off (so at least 75 years if the mortgage period is for 25 years).
This leaves leasehold owners with a problem if they allow the lease of a property to dip below 80 years.
What to do about the '80 year rule'?
If you're considering buying a leasehold property in London, ensure you get clear answers about the term remaining on the lease.
If the remaining lease is longer than 80 years, consider how you'll budget to extend the lease.And always seek legal advice before buying a leasehold property.For help with leasehold questions: Contact the leasehold advisory service. And use this calculator to work out the costs of extending your lease.
We have extensive experience in buying and selling leasehold properties in North West London.
Call us for free advice on: 020 7424 3222