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Leasehold Time Bomb

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An article in the FT weekend said there are over 2 million leasehold properties with leases shorter than 80 years (becomes very expensive to renew the lease and difficult to obtain mortgage). This could be very interesting in the middle of a crash.

Ancedotally it seems more flats these days are starting with 99 year leases, and with higher ground rent and that increase significantly over the years.

I never really understood the reason for such variation in terms. Can a builder simply decide: "I'd like the lease to be x and ground rent to be y"

Does anyone know anything about this?

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An article in the FT weekend said there are over 2 million leasehold properties with leases shorter than 80 years (becomes very expensive to renew the lease and difficult to obtain mortgage). This could be very interesting in the middle of a crash.

Ancedotally it seems more flats these days are starting with 99 year leases, and with higher ground rent and that increase significantly over the years.

I never really understood the reason for such variation in terms. Can a builder simply decide: "I'd like the lease to be x and ground rent to be y"

Does anyone know anything about this?

Never understood Leasehold houses; i get flats but can someone kindly explain? Seems to be incredibly prevalent in London.

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I never really understood the reason for such variation in terms. Can a builder simply decide: "I'd like the lease to be x and ground rent to be y"

Yes. The builder can set whatever terms they like.

In relatively recent years, the tendency has been to give long leases, typically 199 years and up. I've come across quite a few 999 year leases. The idea of this, is that the lease is effectively there only for contractual purposes (i.e. to provide a mechanism for the management to ensure that maintenance is paid for, and that inappropriate usage of the property is curtailed). The length of such a lease means that it has only limited capital/investment value (it is worth only the short-term forseable income, beyond that, inflation will mean that the ground rent becomes peppercorn). Additionally, the long lease does not compromise loan security and ensures that mortgages are available at the best terms.

Shorter leases have the advantage for the freeholder that there is a fee for lease renewal, or if a lease is not renewed then it can be resold at current value. However, there are concerns over security with these, hence for the developer, there are advantages in a long a lease as possible.

For most practical purposes 99 years is considered long enough that there is no real concern over loan security, hence little impact on market price, and there is plenty of time to deal with lease extensions.

The recent move has been to try to avoid the problem of the ground rent being inflated away to a peppercorn with time, hence there are increasingly moves to try to index link the ground rent, so that it is reviewed every 10 years or so.

In general, ground rents tend to be nominal amounts (e.g. many 2005 era properties were being sold with £100 pa ground rent). However, there has been a tendency to increase these, and I'm now seeing flats with £1k or £1.5k pa ground rents. At some point, the lenders are going to need to factor these into market value calculations, as for the large part ground rents tend to be ignored. This is especially the case with index linked ground rents, which as a financial instrument have substantial value, and should therefore represent a substantial depression of the market price.

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They seem to be quite common up north.

It is something that pees me off, owning outright but not owning the land the house is on! And being obliged to pay a small sum every year. If the Tories got their act together, doing away with this or making it easy to own the freehold would be a big vote-winner.

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They seem to be quite common up north.

It is something that pees me off, owning outright but not owning the land the house is on! And being obliged to pay a small sum every year. If the Tories got their act together, doing away with this or making it easy to own the freehold would be a big vote-winner.

If you have 50% or more of the leaseholders in agreement you can force the freeholder to sell you the freehold - it's called collective enfranchisement

But I wouldn't worry about it too much, as ultimately, even freeholders are just looking after the land on trust for the Crown and it will eventually revert back to Queenie or her descendants

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If you have 50% or more of the leaseholders in agreement you can force the freeholder to sell you the freehold - it's called collective enfranchisement

But I wouldn't worry about it too much, as ultimately, even freeholders are just looking after the land on trust for the Crown and it will eventually revert back to Queenie or her descendants

Will look into it. Might mean talking to the neighbours! Though it is a house not a flat.

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Yes. The builder can set whatever terms they like.

In relatively recent years, the tendency has been to give long leases, typically 199 years and up. I've come across quite a few 999 year leases. The idea of this, is that the lease is effectively there only for contractual purposes (i.e. to provide a mechanism for the management to ensure that maintenance is paid for, and that inappropriate usage of the property is curtailed). The length of such a lease means that it has only limited capital/investment value (it is worth only the short-term forseable income, beyond that, inflation will mean that the ground rent becomes peppercorn). Additionally, the long lease does not compromise loan security and ensures that mortgages are available at the best terms.

Shorter leases have the advantage for the freeholder that there is a fee for lease renewal, or if a lease is not renewed then it can be resold at current value. However, there are concerns over security with these, hence for the developer, there are advantages in a long a lease as possible.

For most practical purposes 99 years is considered long enough that there is no real concern over loan security, hence little impact on market price, and there is plenty of time to deal with lease extensions.

The recent move has been to try to avoid the problem of the ground rent being inflated away to a peppercorn with time, hence there are increasingly moves to try to index link the ground rent, so that it is reviewed every 10 years or so.

In general, ground rents tend to be nominal amounts (e.g. many 2005 era properties were being sold with £100 pa ground rent). However, there has been a tendency to increase these, and I'm now seeing flats with £1k or £1.5k pa ground rents. At some point, the lenders are going to need to factor these into market value calculations, as for the large part ground rents tend to be ignored. This is especially the case with index linked ground rents, which as a financial instrument have substantial value, and should therefore represent a substantial depression of the market price.

Thanks, that was very interesting.

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Leaseholds are a con. If anyone tried to create them today they would probably be jailed for fraud.

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http://www.rightmove.co.uk/house-prices/detail.html?country=england&locationIdentifier=STREET%5E392272&searchLocation=Waters+Edge

Some estates are all freehold but some are leasehold.
These are quite near me,

Can't see on the sale info of the one currently for sale about how long the leasehold is.

My little sister has a 99 year lease on her shared ownership flat. Oh, wait it'll only have 87 years on it now. Utter madness.

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It is an issue right now. You are deliberately denying the rights of full ownership by a deceptive practice. When it comes to price you are paying the full freehold price. Where to own the freehold is more expensive merely means you are paying a premium for the privilege. There is NO defense of this outrageous form of property transaction.

In what respect is it deceptive? It's all there in black and white. It's a freely entered into contract by grown adults with legal advisers. I'm fed up with banning this and banning that just because some people are idiots.

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In what respect is it deceptive? It's all there in black and white. It's a freely entered into contract by grown adults with legal advisers. I'm fed up with banning this and banning that just because some people are idiots.

Superb response

Flats with share of freehold are available - and cost little more than the equivalent flat with a longish lease (think 99+ years)

If the lease is short it will be reflected in the price

You don't want to buy a leasehold fine? Don't buy one then. Get a share of freehold flat. What is the issue?

I have bought, lived in and sold both freeholds and leaseholds - get a decent conveyancer and you're good to go

This forum is becoming increasingly schizophrenic on so many issues

"b@st@rd* boomer scum handing down their freehold property to their children"

versus

"leaseholds are a con to stop me handing down my property for all perpertuity to my offspring"

fcking laughable

Edited by knock out johnny

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In what respect is it deceptive? It's all there in black and white. It's a freely entered into contract by grown adults with legal advisers. I'm fed up with banning this and banning that just because some people are idiots.

Its not deceptive IMO - its just plain wrong. There are certain areas in the UK - London for one - where its almost impossible to find a place that isn't leasehold in many areas. There is no choice.

Its like going in for a 'democratic' vote and within the ballot box there is a single name you can tick. All above board and there in black and white. But just plain wrong.

I can't believe on this site of all places - there are people sticking up for leaseholds. Baby Allah and little Jesus wept.

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Leasehold = another way for land owners to protect their asset and extract wealth from others. Shady practice if you ask me. Don't support it.

2 million short leaseholds. Game on. :D

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