The Pros And Cons Of Purchasing A Property With A Low Lease - Jonathan Lea Network

The Pros And Cons Of Purchasing A Property With A Low Lease

Introduction

The property market is filled with various opportunities, and one option that catches the eye of many potential buyers is acquiring a property with a low lease. While it may seem like a tempting investment due to the potential cost savings, there are both advantages and disadvantages that need careful consideration before making such a commitment.

Pros:

  1. Affordability: The most apparent advantage of purchasing a property with a low lease is affordability. The initial cost of acquisition is significantly lower compared to properties with higher lease terms. This allows buyers to enter the property market with a lower upfront investment, making it an attractive option for first-time buyers or those with budget constraints.
  2. Potential for High Returns: Investors often see low-lease properties as opportunities for high returns. With a strategic approach, investors can increase the lease term over time or make improvements to the property, ultimately raising its value. This potential for appreciation can result in a profitable investment in the long run.
  3. Market Entry: Low-lease properties can serve as a gateway for individuals to enter competitive property markets. In areas where property prices are soaring, a property with a low lease can provide a foothold for buyers who might otherwise be priced out of the market. It can be a stepping stone towards building a property portfolio.

Cons:

  1. Market Perception: Properties with low lease terms may be perceived as less desirable. This perception can affect the property’s resale value. Even with potential improvements, a property with a low lease will most likely need a lease extension before it can be sold on.
  2. Restrictions on Mortgage Options: Most high street lenders are unwilling to lend on properties with particularly low leases (although there are some lenders who do lend in this area, but interest rates may not be competitive). Therefore, depending on how low the lease is, marketing may be restricted to cash buyers only.
  3. Costs of Extending the Lease: It usually follows that the lower the lease of a property, the more expensive a lease extension will be. So, although you may have bought a “bargain” property, you will at some point need to extend the lease to sell or remortgage the property.

What are your Options?

If you are looking to purchase a flat with a low lease, there are a couple of options you have to increase the lease term:-

  1. If you are struggling to mortgage the property because of the low lease, it is possible for the seller to request a lease extension from the freeholder directly. The freeholder would state his terms, which would need to be agreed, and the lease can be drawn up in your name and completed simultaneously with the purchase.  This would satisfy the criteria of many lenders to mortgage the property.
  2. If the terms of the lease extension cannot be agreed with the freeholder, or the freeholder does not wish to enter into an arrangement, the seller (so long as they have owned the flat for 2 years or more) may serve a statutory Section 42 Notice on the freeholder to extend the lease. The Notice would then be assigned to you on completion of the purchase and you will complete the lease extension process yourself.

Conclusion

It is possible to remortgage in order to extend your lease, but your choice of lenders may be limited, and the lease extension will have to complete simultaneously with the remortgage i.e. the mortgage funds will be released in order to pay for and complete the lease extension at the same time.

In conclusion, purchasing a property with a low lease comes with its own set of pros and cons. While it can be an affordable entry point into the property market and potentially yield high returns with strategic management, the limited income potential and associated risks should not be overlooked.

If you have any questions or would like further advice on the above, then please call us on 01444 708 640 or email us at wewillhelp@jonathanlea.net.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited 2024. 

About Karen Muir

Karen specialises in leasehold enfranchisement, including dealing with Tribunal and Court applications and has been working in this area for around seven years.

Karen’s wider practice also includes The Right of First Refusal, Licences to Alter, Deeds of Variation and all matters relating to landlord and tenant law. Karen has worked in Surrey, Sussex, Greater London and the South West of England.

The Jonathan Lea Network is an SRA regulated firm that employs solicitors, trainees and paralegals who work from a modern office in Haywards Heath. This close-knit retain team is enhanced by a trusted network of specialist self-employed solicitors who, where relevant, combine seamlessly with the central team.

If you’d like a competitive quote for any legal work please first send an email to wewillhelp@jonathanlea.net with an introduction and an overview of the issues you’d like to discuss, following which someone will liaise to fix a mutually convenient time for a no cost no obligation initial call with one of our fee earners.

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