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'I was turned down for a mortgage because my lease was too short'



One and a half million leaseholders in England could be sitting on a time-bomb as their homes run the risk of plummeting in value, or even become impossible to sell.


About ten per cent of all owner-occupied residences are leaseholds – where the homeowner buys the right to live in a house or flat for a certain period.


Leaseholds can run for up to 999 years on houses. But in the Eighties, builders of homes – particularly in sought-after harbour developments and coastal towns – started to sell them on 99-year leases and this has now become common for new-build properties.


But, as many buyers of those properties are finding, once a lease has less than 80 years to run, the value of the property begins to fall. Shockingly, five per cent of the value can be lost when the lease hits the 80-year mark. And with less than 60 years to go the value falls rapidly. This could make it tricky to secure a good mortgage deal, or even make the home impossible to sell.


The Mail on Sunday has for years raised awareness of the problems leaseholders face. Late last year, MPs called for leaseholders to be given new safeguards to protect them from freeholders and managing agents intent on levying excessive fees for providing poor service.


But the problem of short leases has often gone unnoticed by the leaseholders themselves. Richard Sexton, director of chartered surveyor e.surv, in Kettering, Northamptonshire, says: ‘Most people aren’t aware that a shortening lease term can erode thousands of pounds from the value of their home.’


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Engineer Richard Langston, 36, was refused a mortgage by Nationwide after it turned out that his lease was too short for the lender’s criteria.




The lease had only 65 years left when he bought his two-bedroom maisonette in Aylesbury, Buckinghamshire, in 2002, but Richard didn’t realise it was going to cause a problem so soon.

He says: ‘I did ask for the lease to be renewed when I was first buying the flat but then I just decided to go for it.


‘This year when I came to renew my mortgage, my broker London & Country looked into it and first suggested I should go with Nationwide as it offered the best rate.


‘But it turned out that the minimum lease the lender required was 55 years and mine was 54.’
Instead, Richard had to stay with his current lender – Halifax – on a two-year fixed deal at 3.29 per cent, which will cost him £480 more over the two years.


Although the Halifax deal is not uncompetitive, Richard will face an even bigger problem when the two years are up and the lease has just 52 years to run.




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Richard, who is training for the London to Brighton bike ride in June, says: ‘Hopefully in two years I will be extending the lease for 90 years, but I can’t afford it now as the solicitors have said it will cost around £15,000.’

David Hollingworth, mortgage expert at London & Country, in Bath, Somerset, says: ‘Lenders stipulate the minimum unexpired term, which could be 70 years. Some have a lower limit, but with a minimum remaining at the end of the mortgage term.’


For example, Coventry Building Society requires at least 70 years on the lease at the time of application, while Santander wants at least 55 years at the start of the mortgage with 30 years remaining at the end of the term.


Matthew Price of London surveyor Peter Barry believes short leaseholds have become a widespread problem as many homeowners are unaware of the risks.


He says: ‘It’s common that leases have less than 80 years to run.’
Owners of flats are most at risk as 817,000 of the 1.43 million leaseholds in England are on apartments. London and the North West have the most leasehold properties.


Hollingworth says: ‘Buyers must give careful consideration to the future cost of extending the lease before they put an offer on the table.’


TAKE ACTION IF YOU ARE GETTING CLOSE TO THE RISK ZONE



If you think you are in the risk zone, first find out how much time is left on your lease.


Matthew Price of surveyor Peter Barry suggests you should start thinking about it when it reaches about 85 years.


There are two options – extend the lease or turn it into a freehold. You can extend a lease once you have been in a property for two years, either by contacting your landlord direct or via a chartered surveyor.


The standard extension is 90 years for flats and 50 years for houses, which is added to the remaining term.


Once the lease has been extended, any ground rent under the existing lease will be reduced to zero.


Extending the lease can cost anything from a couple of thousand pounds to tens of thousands of pounds – it depends on the value of the home and the time remaining.


The shorter the lease, the more expensive it will get.


You can also buy the freehold – a process made easier by the Commonhold and Leasehold Reform Act of 2002.


Richard Sexton of e.surv says: ‘For houses it’s always better to buy the freehold as you can only extend a lease for a house for 50 years.


‘It’s more complicated for flats as you would need to reach a collective agreement with neighbours in the block.’


And even if you get most of your neighbours to agree, managing the freehold for many owners can be complex.

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