Over a million UK homeowners at risk – a short lease knocks thousands off property values

E.surv, a major UK chartered surveyor, has issued a warning to homeowners not to allow their leases run below 80 years. They found that over 1.4 million homes in England and Wales are at risk of running into negative equity which could wipe thousands of pounds off the value of these properties.

Leaseholders essentially rent the land their property is on from the freeholder whereas freeholders own both the land and their property. 90% of properties in England and Wales are freehold and the remainder are leasehold with most of these leaseholds being flats.

Leases keep getting shorter

Long leases of 99 or 125 years are usually granted on flats – but with many flats built in the last 50 years, many leaseholders have leases which have run below the critical 80 year mark. As the lease runs down, the value of the property plummets and this is extremely dangerous for the owner and for the mortgage lender. Both can end up in negative equity as the property cannot be mortgaged and therefore cannot be sold. This could even lead to he borrower being stuck in the home and the lender having to repossess the now toxic asset.

82,000 of the 1.4 million leasehold properties in the UK are flats and the remainder are houses. Most of these flats are in cities meaning that those in urban areas are most affected by the short leasehold terms difficulties. However, some regions are more affected than others. The Midlands for instance has relatively few leasehold flats whereas around 25% of the properties in London and the North East are leasehold flats. Those in flats tend to be less wealthy than those in houses showing that this is largely a problem affected the less well-off members of society.

UK lease extension and marriage value

Once the lease runs below 80 years, the cost of a lease extension increases sharply as the “marriage value” kicks in. Landlords are therefore able to hike the premiums they charge to extend the lease. Mortgage lenders will often refuse mortgages on flats with leases less than 80 years as well which can turn the property into a toxic asset.

Although lease extension or leasehold enfranchisement (the process of buying the freehold) can appear costly at first, going into negative equity and being left with a toxic asset will cost far more.

Call our solicitors for expert UK lease extension advice

Lease extension and lease enfranchisement involve very complex legal work beyond the scope of a generalist solicitor. Our enfranchisement solicitors are leasehold reform specialists – so we can help you get a fair deal out of the lease extension or enfranchisement process.

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