Nearly 1.5 million homes could plummet in value due to short leasehold terms

Chartered surveyors have warned that the nearly 1.5 million owners of UK leasehold properties could face huge financial losses as a result of their leases running below the critical 80 year mark and some could even fall into negative equity.

Just 10% of homes in England and Wales are leasehold with owners of the remaining 90% being freeholders and therefore owning both the land and the structure on it. Leaseholders essentially rent the property and the land from a freeholder and this is most common with flats, which are usually leasehold because of the complications surrounding shared ownership.

Flat owners should always look to have the longest leases possible and long leases are usually granted for 99 or 125 years. However, a huge number of flats have been constructed over the last 4 or 5 decades meaning that lots of homes across England and Wales now have less than 80 years to run on their leases. As this lease gets closer to zero the property value decreases and both the owner and the mortgage lender face financial disaster. Indeed, if the flat runs into negative equity it will be impossible to get a mortgage and therefore unsellable. It could even get so bad that the borrower cannot move and the lender has to repossess what has become a toxic asset.

Well over half of the UK’s leasehold properties are flats and most of these are in urban areas. However, the density of these properties varies enormously around the country. In London and the North East for example nearly a quarter of all properties are leasehold flats, whereas in the Midlands the percentage is very low. This regional disparity is alarming for mortgage lenders who are heavily involved in high density areas. With most leasehold properties being flats rather than houses, it is also likely that flat owners are less well-off and therefore more likely to struggle should their flat go into negative equity.

It is therefore crucial that leaseholders extend their lease before it runs below the critical 80 year period. Once it hits 80 years, the cost of extending a lease increases dramatically because freeholders can charge much prices. Furthermore, at this point, mortgage lenders will often stop granting mortgages which further damages the value.

The cost of going into negative equity is far higher than the cost of UK lease extension or even purchasing the freehold (enfranchisement) so leaseholders should seek expert legal advice on one of these options at the earliest opportunity.

Thinking of extending a lease in the UK – we can help you

Those considering leasehold extension or lease enfranchisement will need a specialist solicitor to help them because the legal process can be highly complex. Our UK lease extension solicitors have the experience and expertise needed to help, so:

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