Buying property in East London: what does “leasehold” mean?
People have all sorts of questions when they’re buying houses, and it’s part of my role as an East London estate agent to answer them and allay buyers’ fears.
A question that often arises is “what does leasehold mean?” The word appears on many property websites (including this one!) alongside descriptions of houses and flats. It appears very frequently because recent figures show that 98% of new build is freehold, compared to just 43% of the national housing market. It’s easy to overlook it and just concentrate on the price. However, it is an important point to be aware of, because it can affect the amount your new home will cost you overall.
Leasehold means that when you buy the property, you are actually leasing it from the freeholder for a particular amount of time. This can affect mortgages and how easy it is to sell the property in the future, and also means buyers pay service charges and ground rent annually.
The impact of length of lease when you’re buying and selling property in East London
The first thing to say is that most leases on new build property are at least 250 years and in many cases 999 years. This means there’s no need to panic if you’re planning to buy new build.
However, if you’re buying other kinds of property, it’s worth remembering that most banks and building societies will not consider a mortgage application for a house with a lease shorter than 70 years. For this reason, it can also be very difficult to sell property with a short lease.
Fortunately, UK law allows you to extend your lease. The price of extending the lease usually increases dramatically after the lease goes below the 80-year mark. However, extending the lease will increase the value of your property and make it easier for you to sell, so it is usually a worthwhile investment.
If extending the lease is not an option, don’t despair – you might still be able to sell your property to a cash buyer.
Understanding ground rent and service charges
Service charges usually cover the cost of maintaining the structure itself, e.g. the walls and roof. In luxury developments, these may be charged at between £5 and £6 per square foot of the apartment you’re leasing. Charges are lower in standard properties.
Ground rent is exactly what it says it is – rent for the ground that the building sits on. It is usually between £300 and £400 per annum.
It is important to factor these costs in when you’re buying a new home. You need to be confident that you can meet them, in addition to mortgage repayments.
Buying and selling property in East London
I’ve been selling property in East London for over a decade – if you have any questions about leases or the London property market in general, just give me a shout. I’m Adam Dockley and you can get in touch on 020 3633 4440.