Leasehold mortgages
Leasehold properties are not freehold. The property is only yours for a set period in a leasehold, and the land belongs to the freeholder.
Many customers contact us to enquire about a mortgage for leasehold properties. The terms freehold and leasehold mortgages are popular in the UK. But what does it mean, and how does a mortgage on a leasehold operate?
This is a guideline to help you understand the process of getting a mortgage or leasehold property. They are more complicated than regular repayment plans and may cost more.
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How to get a mortgage on a leasehold property in the UK?
We’ll answer questions like “Can I get a mortgage for a leasehold house or flat?” “What problems are associated with leasehold mortgages?” “What is the minimum lease required to obtain a mortgage?”
We have a few mortgage providers lending to leasehold properties. We will ensure you get the best leasehold mortgage rates as we have access to most market mortgage lenders to introduce you. The next step of your journey is mortgage approval on a freehold property.
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What is a leasehold mortgage, and how do you get one?
You can choose to buy a property on a freehold or lease extension. A freehold property means you own all the land and the property. Leasehold properties are not freehold, so the property is only yours for a set period, and the land belongs to the freeholder.
A leasehold mortgage allows you to lease the property from the freeholder for a set period. Although leases can be extremely long (up to 999 years), they are usually 90-120 years. Leases can be as short as 40 years, and you will rent the ground from the freeholder.
How does a leasehold property get a mortgage?
A loan to leasehold property is similar to a standard mortgage. Lenders will require specific criteria to approve you and conduct checks to ensure you can afford the mortgage repayments.
The lease length is an essential factor affecting a lender’s decision. Generally, the longer the lease, the more difficult it is to obtain a mortgage.
Click the link to constitute financial advice with a mortgage broker.
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Can I get a mortgage for a short-term leasehold property?
It is possible to obtain a mortgage for a leasehold property or flat. Be wary of “too good to believe” prices – it may be possible! As leases decrease in value, the shorter the lease is, the more likely the asking price will be. The surveyor will reflect this in the final value.
If you want to purchase a leasehold, you should first find out how long your lease has been in force. Many mortgage lenders won’t lend to homes with a lease term of fewer than 70 years. A mortgage can be obtained on a short leasehold property with a term of 60 years or less. However, you will need to pay higher interest rates and deposit more.
Mortgage providers typically request that your lease extension is for at least 40 years after your mortgage term ends. This is to ensure that the property’s value doesn’t decline.
What is the best time to extend my mortgage lease?
The 1993 Leasehold Reform Act gives homeowners the legal right to have 90 years added to their lease for a fair market value. You must have lived on the property for at least two years.
These two years can make all the difference. Imagine that you purchase a property with 81 years remaining on its lease. After two years of ownership, the 80-year lease cutoff will be reached. You’ll need to pay thousands for an extension.
For those with 90 years left, there is no need to act immediately. However, everyone should consider extending their lease when it reaches 83 years. This applies even if they have a “mortgage-for-life” lease.
What is the best way to get a mortgage on a flat I own?
Click the link below to speak with a specialist mortgage broker to provide mortgage advice.
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Problems with leasehold mortgages
There are other things you need to know before purchasing a mortgage on a leasehold. We recommend speaking with a mortgage broker.
On an ongoing basis, rent is re-assessed
Although land rent is affordable when purchased, it is constantly re-assessed to reflect the property’s current market value. If the property’s value increases, you could pay a prohibitive amount for the ground rent.
There are no benefits to an increase in land value
You won’t benefit from an increase in land value because you don’t own it. The freeholder will be the one to benefit, and you might end up paying more rent due to the increased land value.
We have fewer lenders available.
Due to the risks and complications associated with leasehold properties, it can be harder to obtain financing. A lower interest rate may be possible if there are fewer lenders available. You might also need to deposit a more significant amount than if you were buying a freehold.
Selling is more complicated.
Flats are usually purchased leasehold. However, this may not be true for all apartments. If only a short lease is left, it can make selling a leasehold home more difficult. This is because of the risks associated with these properties and the lack of demand.
However, depending on their circumstances, leasing can be a good option for some people.
We have access to advisors who specialise in leasehold properties. Click the link below for advice on a leasehold property.
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Criteria and requirements for leasehold mortgages
You must meet specific criteria, as with any type of mortgage. Every lender will have different opinions about what they will and won’t accept for leasehold property mortgage requirements. While the lease length is a significant factor, many other factors should be considered.
Loan To Value on the leasehold mortgage
It is popular to notice a change in the leasehold mortgage Loan-to-Value (LTV) requirements. LTV refers to the ratio of how much money you borrow to the property’s cost. Some lenders will accept 95% LTV (5% deposit) for standard residential properties. Others will accept 90% and less.
LTV requirements are often stricter for leasehold properties. Expect to deposit at least 15-20% if you want the best deals.
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Affordability
Before authorising a mortgage, lenders will evaluate your ability to repay the monthly and annual income repayments.
Other factors that influence
Factors affecting general mortgage eligibility include your credit history, debt and age.
Click the link for the best rates for leasehold mortgages that suit your needs.
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