by Andrew Milnes, Mortgage Advice Bureau, www.mortgageadvicebureau.com/bingley
Q: I’m considering purchasing an executive apartment in the centre of Leeds. It’s a lovely development and I can imagine it would offer a great lifestyle. However, I’ve never
bought a leasehold property before and I’m slightly concerned about how I would go about getting a mortgage. Is there anything I need to be aware of?
A: When it comes to leasehold properties, the key message is don’t be afraid, but do be aware. Providing you do your research and enter into the process with your eyes wide open, generally leasehold properties are fine.
However, there are some factors with regards to your mortgage that it’s worth being aware of.
Firstly, lenders will factor into their affordability calculations the Service Charge and Ground Rent that you’ll be charged, as this is seen as committed expenditure. This can affect the overall amount that they are prepared to lend. So, whilst not an insurmountable problem whatsoever, you do need to make your mortgage adviser aware as soon as possible that you’re considering a leasehold property.
This is especially relevant if you already have an Agreement In Principle (AIP) in place. That’s because the lender will need to be aware that you’re considering making an offer on a leasehold property if the original AIP was issued on the basis that you were buying a freehold property.
The second factor is the length of the lease left on the property you’re looking to purchase. Generally, most lenders want to see 30 or 35 years left on the lease past the end of the mortgage term. So, for example on a standard 25-year mortgage, a lender may want to see 55 or 60 years left on the lease before they will consider lending on the property.
For this reason, it’s important to make sure that you ask as soon as possible what the remaining lease term is, ideally before you make an offer on the property, just so that you can check that this will fit within your lender’s criteria.
The good news is that the majority of new-build apartments have modern leases with 125 or 150 years from first occupation, so in these instances it’s rarely an issue.
If you’re considering buying a leasehold property, it’s worth instructing a solicitor who specialises in dealing with leasehold purchases. They’ll be used to navigating complex leases and will be able to explain any ‘legalese’ to you. This is important, as you need to be comfortable that you fully understand what you’re signing up to.
For example, it’s important to ascertain if there is a provision in the lease for any increases, such as a rising Ground Rent or increase in Management Charges; both of these are factors which could cause issues with both raising a mortgage to purchase the property, and potentially selling it in the future.
Also, do ask the estate agent who is marketing the property if they have a leasehold pack available, again ideally before you put in your offer. This is a set of documents containing a copy of the lease as well the last set of the accounts for the previous year. These will enable you and your solicitor to review expenditure on maintenance for the building, as well as the management fees charged. It’s also key to ensure that there is significant Sink Fund provision for repairs and maintenance.
This may all sound complex, but don’t let it put you off. Managed well, leasehold properties can provide their owners with a great lifestyle. Just make sure you read the lease fully and understand it.