Remortgaging to Extend a Lease
Remortgaging to extend your lease may make it affordable for you; however, it may only sometimes be possible.
In this article, we’ll explain why that is. We’ll also discuss leases, remortgages and lease extensions more deeply and address some of your frequently asked questions, so let’s get started by explaining how remortgaging and lease extension work.
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What Are Leasehold Properties?
Unlike a freehold property, which, once purchased, you own forever, you only own a leasehold property for a fixed period. The leases are usually for around 90 years but can be as long as 999 years or as short as 40 years.
Because of the length of time, most who have leased this long consider themselves the property owner. In addition, mortgage lenders will typically have no issue lending for properties with leases over 70 years long.
How a Lease Extension Works
A lease extension adds years to your lease and extends the time you can use the property. Generally, they’re done by serving your landlord with a Section 42 Notice, which is a formal request to extend the lease of the property.
Anyone considered a qualified leaseholder can apply for a lease extension; the requirements are:
- You must have held the property for at least two years.
- The original lease must have been granted for longer than 21 years.
The Process of Extending a Lease
Start by letting your freeholder know your intention, to begin with the lease extension process. Next, appoint a lease extension solicitor, ideally an Association of Lease Extension Practitioners (ALEP) member. After this:
- Find a valuation surveyor.
- Serve tenants’ notice with the aid of your solicitor.
- Pay a deposit (as required) and have your solicitor negotiate a price.
What is a Remortgage and What Are the Benefits?
Remortgaging is when you move the mortgage you have now to another lender. The benefits of doing this, particularly for extending a lease, are that it offers you the finance you need to do so. However, there are many extra benefits; these include:
- It may reduce your monthly repayments: particularly if you get a lower variable or fixed rate; remortgaging saves you on your monthly payments. You can even reduce your mortgage term.
- Reduces your loan-to-value (LTV): If your property value has increased and your LTV has diminished, you could get better mortgage conditions.
- Switching from variable to fixed rate: If interest rates are rising, remortgaging allows you to change from the current unreliable interest rates to a fixed-rate mortgage you know you can afford.
Remortgaging and Extending Your Lease Concurrently
It’s perfectly viable to both remortgage and extend your lease. Because the Land Registry has such a huge backlog it may take up to a year for your lease extension to register. Doing so on the same day will mean that you won’t need to wait to remortgage because of lender criteria.
Costs of Extending a Lease
Each time you extend your release, you have to pay the property owner, known as a freeholder, a premium for the additional years: this can be very expensive.
With a variable rate mortgage, you should be able to get the money to extend your lease quite easily as it likely has no fixed term. However, a fixed-term mortgage may prove more trying, and you might have to pay early repayment charges to get a remortgage. Otherwise, you’ll have to wait until the current fixed-term ends, which may be a few years.
That said, if you can afford the fees and have enough income to spare and sufficient equity, then mortgage lenders will have no issue offering you a remortgage to extend your lease. They might even offer you a further advance, which is just when you borrow more on your current mortgage, instead of having to get a remortgage.
You may even be able to avoid specifying that it’s for extending your lease to have the cash on hand for when you need to make the extension.
Statutory Lease Extension Process
Freeholders don’t have a limit on how much they’re able to charge you for an informal lease extension. If eligible, it may be better to go down the statutory lease extension process with a section 42 notice. Here the premium is determined by a formula.
Additionally, hire a surveyor to value the property: this way, your freeholder will be tied to the value that your surveyor determines and not their own calculations.
Selling a Short Lease Property
One concern many property owners have is whether they can sell their short-lease property without a lease extension. Here’s the thing, you don’t have to go through the challenging process of getting a remortgage to acquire a lease extension.
After you’ve got a buyer and completed the contracts, you can serve a section 42 notice to your freeholder and assign the benefit of the notice to your buyer. They’ll then have to complete the extension process themselves.
Becoming a Landlord
While extending your lease, you should be able to remortgage it onto a buy-to-let mortgage. But do remember that the eligibility is determined not by if you can afford it, but by the rental income it will likely make.
Also bear in mind that being a landlord is a lot of effort and requires a lot from you. You’ll need to attend to tenant concerns, make sure to keep the property in good condition, and properly vet tenants so that you don’t get a bad tenant: they can be a nightmare.
Requirements for Leases
The requirements for leases will vary depending on your lender. Generally, however, lenders are concerned with the years left on the lease. You’ll typically need about 80 years on your lease before lenders grant a remortgage, with some even stricter restrictions locking it in at 85 years.
While the ability for borrowers to pay for ground rent was a concern for lenders, it’s no longer. This is because of the changes as of 30 June 2022: all new leases are prohibited from charging leaseholders ground rent.
Alternative Funding
And if you’re short of funds and cannot get a remortgage to fund your lease extension, consider alternative options: lending from family or taking out a personal loan with your bank.
Bridging Loans
These loans are only a temporary solution that requires borrowers to have an exit strategy. Although, coming by one may not be that easy.
Second Charge Mortgages
Another alternative is to get yourself a second-charge mortgage. Here you’ll just be taking out a second mortgage on your property, although you’ll likely need the consent of your current lender to do this and a deed of postponement.
Typically, these will be much less than the first charge as well. Although your mortgage lender will still scrutinize you, such as evaluating your income sources and debt and doing a priority search at the Land Registry to ensure nothing has changed on your property deed.
FAQs
Can I remortgage to extend my lease?
Remortgaging to pay for a lease extension is an excellent choice as it lets you move to a cheaper mortgage option, so you have more money to pay for your lease extension.
Can I extend my lease without a solicitor?
For peace of mind, we recommend that you extend your lease with the help of a solicitor, as they have the expertise needed for a lease extension.
How much does extending a lease cost?
Extending your existing lease will cost you, along with the price of the lease extension, professional fees for both you and your freeholder. Typically your fees will be around £2,000-£2,500 plus value-added tax, and your freeholder’s fees will be around the same amount.
Is it worth extending my lease?
If your lease is less than 90 years, you should attempt to get a lease extension. Properties with short leases are less valuable than those with long leases.
Is it easy to extend a lease?
Getting a lease extension is not that difficult; you can ask your landlord to extend it anytime. Depending on whether you qualify, you can extend your lease by 50 years on a house and 90 years on a flat.
Thinking About Remortgage and Lease Extension? Contact Us.
As mortgage brokers, we’ve got over 200 UK lenders on our panel to select from. We’ll connect you with lenders with only the best mortgage deal for your leasehold home.
You can contact us via our online form on weekdays between 8-5 and on weekends or bank holidays. You can also give us a call at 0808 301 9509.