Buying a leasehold home can be complicated at the best of times, but that’s especially the case at the moment, while the government seeks to overhaul the system to make it fairer to buyers.
Here, we explain the six things you should always check before making an offer on a leasehold property.
1. Whether it should be sold as freehold instead
Flats have long been sold as leasehold, but the sale of leasehold new-build houses over the past decade has resulted in many homeowners being left with unsellable properties saddled with punitive clauses.
This is set to change. The government is pushing forward with its plans to ban new houses being sold as leasehold, something it originally proposed back in June 2017.
Ahead of the ban being enshrined in law, it’s possible that some properties are slipping through the net.
If you’re looking for a brand-new house, the first question you should ask is whether it’s being sold on a leasehold or freehold basis – and if it’s the former, look elsewhere.
- Find out more: learn about the differences between leasehold and freehold
2. How many years are left on the lease?
Before coming anywhere near making an offer on a leasehold property, it’s vital to find out how many years are remaining on the lease. The importance of asking this question can’t be overstated.
If you have fewer than 80 years on the lease, this can affect your chances of getting a mortgage for the property and, even if you do manage to buy the home, you could struggle to sell it in the future.
To be on the safe side, only consider buying a property with a lease of fewer than 90 years if you have an agreement in place for the freeholder to extend it as part of the purchase.
3. Whether you can extend the lease
You legally have the right to extend the lease by 90 years after two years of owning the property, but there’s plenty that can go wrong and delay the process, from absent freeholders to disagreements over the price.
Ultimately, if you can’t agree a deal, you’ll need to go to a tribunal, but this can be a slow and costly business.
The government is seeking to reform the lease extension and freehold purchasing process, and last year ministers tasked the Law Commission with reviewing the current laws.
Earlier this month, the Law Commission reported back with several proposals on how the government can cut the cost of buying a freehold.
These included abolishing the so-called ‘marriage value’, which offers the freeholder a cut of the potential increase in the value of the property once the lease has been extended.
- Find out more: check out our guide on lease extension and buying a freehold
4. If the property has expensive service charges
If you buy a leasehold flat, you’ll need to pay a service charge for the upkeep of any common or shared areas, such as corridors, staircases, exterior walls and the roof.
In larger new-build blocks, the developer will often appoint a managing agent that will set the service charge and arrange maintenance.
In older or smaller blocks, it’s more common for a residents’ committee to set charges, either as a standalone annual charge or through a fund the leaseholders pay into (sometimes known as a sinking fund).
Currently, there’s no cap on how much you can be charged, although this could change as part of the government’s suite of proposals to reform the leasehold sector. You can appeal to a tribunal if you feel the charges are unfair.
5. …or dodgy ground rent clauses
Soaring ground rents have been at the heart of the leasehold scandal, with some homeowners saddled with ground rents that double every 10 or 15 years.
The government is now proposing to ban these doubling clauses and reduce ground rents on new leases to zero.
A handful of developers have offered a ‘deed of variation’ to existing homeowners stuck with these clauses, but they’re likely to still exist in some older properties.
With this in mind, ensure your conveyancer checks for any dodgy clauses, and don’t commit to the property unless they are removed.
6. If you’ll need to pay permission fees
If you’re buying a second-hand property that was built in the past 10 years, watch out for suspicious clauses in the lease, as some of these properties are subject to so-called ‘permission fees’.
Permission fees are often introduced when the developer sells the freehold to a third party (usually an investment fund), which puts it in the custody of a managing agent.
Managing agents then impose fees for leaseholders to make various changes to the property.
The more eye-opening fees that we’ve encountered include charging £60 for permission to replace a doorbell and £2,000 for permission to build an extension.
What happens if I already own a leasehold house?
There’s been a great deal of talk about reforming the leasehold system over the past couple of years, but many existing leaseholders are still awaiting redress.
In our investigation into the leasehold scandal in June 2018, we highlighted a range of issues, from dodgy ground rent clauses to freeholds being sold behind the backs of homeowners.
And while some developers have agreed to scrap ground rent doubling clauses, many homeowners are still left with properties that they can’t sell or afford to purchase the freehold of.
In June 2019, the Competition and Markets Authority (CMA) launched a review into the mis-selling of leasehold houses, offering the greatest hope yet for trapped homeowners.
When Which? contacted the CMA last month, we were told that an update on the investigation would be released ‘in the new year’, but that no further details were currently available.
Our coverage of the leasehold scandal: a timeline
- June 2017: government launches consultation into banning new-build leasehold houses
- September 2017: leasehold consultation closes
- December 2017: government announces plans to ban leasehold new-build houses and reduce onerous ground rents
- June 2018: our investigation into the leasehold scandal
- September 2018: report claims nine in 10 leasehold buyers regret their purchase
- October 2018: government launches second consultation into capping ground rents
- March 2019: select committee calls for an overhaul of the leasehold system (see our submission to the enquiry here)
Listen to the leasehold scandal podcast
In August 2019, the Which? Money Podcast covered the leasehold scandal.
Find out what Clive Betts MP, who headed up the Housing, Communities and Local Government Select Committee into leasehold reform, and Rob Stevens from the mortgage lender Nationwide had to say about the issue.
You can listen to the podcast below: