Leaseholders new purchasing power… add thousands of pounds to your property value
Record numbers of leaseholders are taking ownership of their blocks of flats as they lose patience with inattentive landlords and realise that purchasing the freehold can add thousands of pounds to their property’s value.
The Leasehold Advisory Service estimates that tens of thousands of flat dwellers could this year force the owners of their buildings to sell them the freehold by the legal process known as “enfranchisement”.
According to the Association of Residential Letting Agents (Arla), the proportion of private flats owned or managed by their residents in England and Wales has risen from about 50 per cent to 65-70 per cent over the past four years. Arma estimates that within 10 years this will be 90-95 per cent.
The rapid growth stems from a change in legislation in 2002, which significantly eased the process of buying a freehold. Also, more and more people are initially opting for leasehold flats, either for the convenience of city living, increased security or because rising property prices have taken detached houses out of their reach.
There is continued unrelenting demand of people buying their freehold and it is now becoming the accepted thing for many leaseholders to do.
It is now much easier for people to force their landlords to sell the lease. The 1993 Leasehold Reform Act introduced the right for leaseholders to get together and force the freeholder to sell. And in 2002, the criteria needed to be able to do this were substantially relaxed. Now only half the leaseholders in a block of flats, rather than two-thirds of them, have to agree to buy the freehold to oblige the landlord to sell.
If this is the case, the group of leaseholders can serve an enfranchisement notice on the freeholder, which is essentially their right to buy the freehold. The landlord has no choice but to sell at a reasonable price, which is either agreed with the leaseholders or taken to the leasehold valuation tribunal.
There are a number of reasons why people are keen to buy a share of the freehold. Most significant is the effect a lease has on what the property is worth. As a lease runs down so does the value of the flat. Mortgage lenders’ attitudes to leases have become more stringent in recent years. While lenders used to raise concerns only when a lease fell to around 50 years, now they tend to get nervous if it falls to around 80 years.
According to Savills Research, a typical property with 80 years remaining on its lease would be worth around 92 per cent of its value if it had a 125-plus year lease. If the length of the lease fell to 60 years, the property would be worth around 85 per cent of that value, and at 50 years only 80 per cent.
So by purchasing a share in thefreehold – which would generally involve writing new 999-year leases for all residents in the block – leaseholders can significantly enhance the value of their property.
The other main factor is that people increasingly want control over their property. The system in England and Wales is the only one where you pay for all the maintenance but don’t own the property.
Owning the lease means owning the right to inhabit a part of a building for a defined length of time. Leaseholders have to pay monthly or annual service fees and/or ground rents, which can be expensive and do not guarantee a good service. By taking over the running of the property themselves, individuals may be able to do a more efficient job.
But anyone thinking about buying their freehold should realise that the benefits may not come easily. Negotiation with freeholders can be lengthy and complicated, particularly if you are one flat owner in a block of 20 or 30 flats. Similarly, the responsibility for the upkeep of an entire building and the common areas is not one to be taken lightly.
If you would like to discuss your specific property requirements with us please e-mail or contact us to arrange a meeting.
Your property may be repossessed if you do not keep up repayments on your mortgage.
For mortgage advice you can choose how we are paid: pay a fee, usually 0.5% of the loan amount, or we can accept commission from the lender.
|
