May 7, 2025 • 20 mins
In this episode of the Merryn Talks Money UK housing mini-series, hosts Merryn Somerset Webb and Money Distilled author John Stepek delve into the complexities of freehold and leasehold properties with guest Anthony Emmerson, who has worked in the mortgage industry for 20 years and is currently director at Trinity Financial.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. Welcome to Myron Talks
Your Money, the personal finance edition of Meron Talks Money
and these bonus podcasts, we talk about the best strategies
for making the most of your money. My Maren Sumspweb
and with me Today's senior reporter and author of the
(00:24):
Money Distilled newsletters, John.
Speaker 2 (00:26):
Stappak Hi John him?
Speaker 1 (00:33):
Okay, John. So we are now doing a housing series
and we've got one of our special guests with us.
We was speaking to Anthony Emerson. Anthony is the director
of mortgage brokers Trinity Financial, London based firms specialize in
bespoke mortgage advice and all sorts of other things. And
in this episode we are going to talk to him
about freeholds and leaseholds, What is the difference, how did
(00:54):
this happen and what is best for you now? Anthony, Hello, welcome, Hello,
Thank you for having me Anthony. When people go out
in the UK, or in this particular case, in England
and Wales, John, do they do this in Wales? This
is a good question.
Speaker 2 (01:11):
I think they do in Wales.
Speaker 1 (01:13):
It's terrible.
Speaker 2 (01:13):
I see I'm the talking squad here and we don't
have lease hold, free hold, Yes, England and Wales.
Speaker 3 (01:19):
There is leasehold in Wales.
Speaker 1 (01:21):
Yeah, okay, so England and Wales. You go out, you
buy a house or a flat, but very often you've
bought something that you think you own in its entirety,
but the truth is that you don't actually own the
whole thing, do you? How does it work?
Speaker 3 (01:36):
There are two kinds of ownership of properties, right, We
have a freehold, where you own the building and the
land on which the building sits. And then you have lethold,
where you own a part of the building demised by
the outline of your title plan, but not actually the
land on which that property sits. And I think it
(01:57):
all heralds from the feudal days of all where royalty
and gentry owned most of the land in England and
they subdivided it and created properties for their people to
live in, but didn't actually want to relinquish ownership of
the land, so they created a lease allowed a property
to be built on that land, and then the lease
(02:18):
was granted for a period of one hundred and twenty
five years or so, and at the end of that
period the hand of the land back and whatever was
on it and that has basically ended up in the
situation that we're in today.
Speaker 1 (02:30):
It sort of makes sense if you think about it.
If you're a landowner and you own a piece of
land and you build flats on it, it's quite difficult
to divvy up the land between the individual flat owners.
So in some ways, when you look at it makes
sense for the ownership of the land to be separate
to the ownership of the flats.
Speaker 3 (02:46):
It does. Indeed, especially when you've got quite a number
of flats on one particular parcel of land. The footprint
of that land could be quite small and you could
have fifty sixty flats up above it. Who owns it,
who controls it, whose response for it? And that's kind
of why the freeholder is responsible for the maintenance of
the building and the outside areas and what have you,
(03:08):
and the leaseholders are responsible for everything within the demise
of their title plan, within their walls and their windows.
Speaker 1 (03:15):
Yeah, but this all came to something of ahead a
few years ago when we found that the house builders
were building actual houses as lease holds rather than freeholds. Right,
So they were sticking up these houses. People were buying
them thinking that they bought a house and they owned
it out right, only to find that they actually bought
a leasehold, and so they owed ground rent to the freeholder.
Because you have to pay a rent to the freeholder annually,
(03:37):
which is called the ground rent. It's normally very low,
but in these cases it ended up being rather higher
than people expected. And then of course they were also
best subject to service charges. Now that's been outlawed, Right,
you're no longer allowed to sell a house as a leasehold?
Is that right?
Speaker 3 (03:52):
In certain circumstances, I believe they're still allowed to do it.
I can't give you the specifics of those circumstances, but
in general now it is is not really seen as
something that is done. Most of that new developments where
there are houses being built are sold on a freehold title.
Speaker 1 (04:08):
Okay, so these days when you're thinking about this, it's
really flat that you need to think about. Yeah, is
it possible to buy a flat freehold?
Speaker 3 (04:19):
Generally speaking, lenders don't like freehold flats because of the
fact that, by the nature of a flat, if you
own the flat, there's generally a flat above you or
another property within that parcel of land, and the lenders
are very very cautious about lending against that flat in particular,
because if they try and repossess that flat and the
(04:41):
person is also the freeholder, they might also be a
little bit more difficult in the repossession process. And generally speaking,
the reason that lenders like leases where the owner doesn't
own the freehold as well is because of the fact
that they find it easier to go down the repossession
route given the way UK law were.
Speaker 1 (05:00):
Okay, interesting, that was not the answer I was expecting. No,
I didn't. I didn't know that was part of the
land of thought process. So interesting, Okay, So what are
the downsides of owning a lease hold flat? Why would
you not want this?
Speaker 3 (05:16):
I think it comes down to control, all right. If
you buy a lease hold flat and you have a
management company or a separate freeholder who's in charge of
the property, your reliance on a third party entity to
do their required maintenance programs. They decide the service charges,
(05:36):
they decide the upkeep of the building, and you're at
their mercy. Whereas if you own the lease but you
also own a share of the freehold itself, then you
and the other parties within the units or the block
should I so would be able to decide between yourselves,
how you want to maintain the building, whether or not
(05:59):
you want to repaint it on a five year rotating cycle.
How you want the common areas maintained, how much that
common area cost to maintain, Because all of the people
who own the freeholds of these units make a margin
of profit on top, because otherwise why would you be
doing it, And that level of profit will vary from
(06:20):
person to person depending on how unscrupulous that freeholder might be.
The biggest thing is that control. If you own that freehold,
you can decide all of those aspects. You could also
decide fundamentally. The big thing is when you would like
to extend that property. You'd like to put a loft
on top, you'd like to extend out the back only
(06:40):
you and the flat upstairs. If you're a Victorian house
split into two flats, need to decide between you. If
you're both okay to go ahead. You can extend the
property in a way you go. You don't have to
pay any amount of money over to the freeholder to
get their permission to be able to do it.
Speaker 1 (06:59):
Okay, so that it works for Anthony. For a Victorian
house with two or three flats in it, you own
the freehold together, you divided up between the flats based
pro rauter or floor space or whatever it is. However
you decide to do that, do you only share the
freehold each? You can chat with your neighbors above you
or below you to work stuff out. But what if
you're in a large nineteen thirties block of flats in
(07:21):
central London and there are two hundred and eighty of you?
How are you going to organize it then as a
share of freehold.
Speaker 3 (07:30):
So the share of freehold company can themselves appoint a
management company to look after the management of that block.
So you then become the clients if you like. Who
then decides the management company's service criteria. They keep performance
indicators and all the other bits and pieces and decide
(07:51):
how much you want done, how much of the garden
work you want done, how often you want the lift service,
how much you want the common areas cleaned, et cetera.
You have that ability to control it, and you'll have
like a body corporate kind of setup where you could
have an annual general meeting and decide for the year
ahead what kind of insurances upgrades you want to make,
(08:13):
what kind of maintenance programs, you want to have, and
you'll know what those costs are, Whereas if you don't
own a share of the freehold and you are reliant
on a totally separate third party, they get to make
all of those decisions on your behalf, irrelevant to what
those costs might be.
Speaker 1 (08:30):
The other really important thing when you buy a leasehold
is how long the lease is. Right, So, if you've
got a lease that is nine hundred years long or
one hundred and fifty years long, or however many years,
it wouldn't necessarily affect the value of the flat as
the years take away. But if you find yourself holding
a leasehold that has only say sixty or seventy years
(08:51):
left on it, then suddenly you really are just renting
somewhere right as opposed to owning somewhere, and you need
to start thinking about extending that lease, which is if
it's going to cost a lot, because you've got to
buy another forty years, fifty years, one hundred years, nine
hundred years of the right to reside off a freeholder.
So the length of the lease affects the value of
the flat.
Speaker 3 (09:11):
That's entirely true. Yes, there is a point in which
there is the term called a marriage value, and that
timeline is generally seventy nine years of lease length remaining
where marriage value happens when if you extend the lease
on the property at that point or below that point,
from seventy nine downwards, there is a fundamental change in
(09:35):
the value of the property because of the fact that
you now have a longer, more desirable lease. So although
you are paying to extend the lease when it's below
seventy nine years, your value of your home should fundamentally change.
Whereas if you've got a ninety year lease and you
want to extend it out to two hundred years, nine
hundred years or whatever it might be, there isn't necessarily
(09:57):
a change in the valuation of your property, but there
is obviously a change in the desirability of your property.
Speaker 1 (10:03):
And there is a new Leasehold Reform Act coming through
right for England and Wales correct which is going to
change a lot of the infrastructure inside which leaseholds work
and attempt to make it easier to extend your lease,
removing marriage value completely, which seems a lot fair on
the freeholders. Maybe ground rent being slashed so you can't
(10:26):
charge people these ratcheting up fees every year, and changing
some of the qualifying criteria to make it easier to
get the right to extend your lease. All this kind
of thing, and I think also a full ban on
leasehold houses as discussed earlier. So all these things that
are coming down the road, and that should mean that
it's easier or maybe more desirable to buy a lease
(10:47):
hold flat in future.
Speaker 3 (10:49):
There's nothing fundamentally wrong with the lease hold flat. If
you've got a good management company and you've got the
right length of lease, etc. A lease holder really doesn't
have that much of a negative effect on ownership and
enjoyment and all the other bits and pieces. I think
the problem really comes when you have a poor freeholder
(11:11):
who doesn't really do their required portion. And I think
the leasehold Reform Bill will make it easier for people
who are in a position where they haven't got a
decent freeholder to be able to get out of that
position and be able to get to a point where
they could extend their own lease, start their own management company.
(11:32):
The least extensions are going to go from extending by
ninety years to nine nine hundred and ninety years. We
are going to make it cheaper easier to extend the
lease and buy the freehold. Like you said, remove that
requirement to pay the marriage value, because one of the
biggest arguments is always exactly what is that marriage value worth?
Is the freeholder who decides the marriage value and then
(11:54):
you have to go to arbitration to be able to
try and work out between you a number that everyone
agreed upon. And I think that is really what puts
a sour taste in everyone's mouth to be able to say, actually,
you know what, now, when I come to this point
with my leasehold flat and I need to extend it,
there should be more of a structure that is allowing
(12:16):
me to be able to achieve what I want to
achieve without all the nonsense that goes with it. That
Leasehold Reform Bill is also going to remove the presumption
that lease holders have to pay the landlords legal costs.
You know, we have to extend the access to redress
schemes for lease holders where the freeholder managers the property directly.
We have to ensure that there's relevant property sales information
(12:38):
is provided to base holders in a timely fashion from
the freeholder, et cetera. So there are things in that
Leasehold Reform Bill that will help. It just hasn't yet
been put in place fully to my knowledge, I think
it's still pending.
Speaker 2 (12:52):
So let's say I am a a fostained buyout or
someone in the market for a flight to leaven rather
than as an investment property. What would you see is
the minimum viable lease hold? You know, if I go
and rate move, should I be saying that I'm not
taking that unless it's at least one hundred and twenty
five years or you know, one hundred years. Is that
(13:13):
a consensus on those.
Speaker 3 (13:15):
The general consensus is that lenders aren't overly comfortable lending
on a property where the underlying lease at the point
of application is eighty five years or under. So it's
not quite the seventy nine And because of the fact
that it's eighty five is because there was a qualifying
period where you had to own the property for a
two year period before you're allowed to apply for a
(13:37):
lease extension. You know, the lease whold reformable will do
away with that qualifying period. But it's eighty to eighty
five years at the start of the term, and then
a lot of lenders have a minimum period remaining at
the end of that more wach term. So when you said,
what am I looking at, which one should I get
away from? The shorter the lease, the more a narrow
(14:01):
the field of lenders that you can pick your finance
from because of the fact that their criteria might not
allow you to apply to them because of the underlying
least lend.
Speaker 2 (14:11):
Let's see, I'm thinking I'm going to live in the
flat for five years, I should be conscious of the
fact that the lease is going to be five years
shorter by the time I come to sale. So for example,
if I bought one at ninety, then I'd be getting
to the eighty five by the time I was going
to sell my flight, And unless I wanted to go
through the rig midle of actually extending the lease, that
(14:33):
would present me probably with smaller market potential buyers. Is
that fair to say?
Speaker 3 (14:38):
That's absolutely right. It's something that you don't think of
every day because of the fact that you only tend
to think about these things that either the point of
purchase or the point of sale, but not in between.
And a lot of people find out to their detriment
that they're now in this position where they have to
either apply it for the least extension to the freeholder
(15:00):
because of the fact that they are beyond the qualifying period,
and then they can allocate that extension to the purchaser,
and then the purchaser has to extend the lease at
the point of completion to allow them to have full
choice of lenders, etc. It extends the purchase journey, it
extends that cost of that purchase, and a lot of
(15:20):
people just can't be bothered to actually go down that
road because as a first time buyer, everything's new to you,
and then to throw this added level of complexity in
might make your property less desirable and therefore achieve a
much lower sales price. You could always extend the lease
yourself and then put it on the market with a
long lease, but again you're probably looking at the fair
(15:42):
few thousand pounds of costs to be able to extend
that lease, and then if you are below that sort
of seventy nine years and whatever you then they might
still be a marriage value at this point in time,
and you don't quite know what that cost is. There
are calculators on the web where you can go and
you can enter in your ground rent and your service
charge and all the other lease lengths, and they can
(16:05):
give you an approximation of what it might be, but
it is just an approximation. And like I was saying earlier,
you've got that situation where people have to then maybe
possibly go to arbitration between the freeholder and yourself to
work out exactly what that price is. And that's where
I think lease holders who are trying to sell into
(16:25):
the market need to do their homework and need to
get the property right from a legal perspective and put
it into the market in its best light to be
able to achieve the best sales price.
Speaker 2 (16:37):
Yeah, and a lot of this sounds like the really
fundamental issue is whether or not your freeholder is a
decent individual or not or a professional. Is there any
way to find out more about the situation where the
freeholders other than by asking other people? Well, asking other
(16:58):
people in the flights may be a good way to
do it, But is that anything you would can said
of in terms of I did due diligence If you're
looking at a lease old flat.
Speaker 3 (17:06):
We've always said to our clients, and it's something that
some people do and some people absolutely shy away from,
but go to the building, go knock on some of
the other doors, because you're probably not going to get
the most honest answer from your vendor, the person selling
the house. But if you knock on the doors of
maybe it's a unit with three or four flats on it,
(17:28):
go knock on the other doors, find out if they
are the owners, and ask what their opinion is of
the free order, Have they done anything that they required
permission from? What was the journey like? Because that's the
only way that you find out any feedback, because there's
no register, if you like, as to what that person
and how they handle their duty. And people change. They
(17:49):
might be great for a couple of years and then
have personal circumstances that change, and then they might not
be so great. And that's kind of why that whole
ability with the leasehold re format to be able to
get out of that situation and buy your freehold and
become your own sort of managing agents, if you like,
would be much much better for clients.
Speaker 1 (18:07):
Interesting, isn't it. I mean, although you say that you
might not get the full truth from the vendor, they're
kind of legally obliged to tell you all this stuff, now,
aren't they. I remember the story we've had recently and
the press about the people who had to take back
the house with the moths in central London because they
hadn't been told the full truth about the moth infestation.
Speaker 3 (18:23):
I get that, but I think it depends whether or
not your seller has actually had any dealings with them
other than just paying their ground rent. If you want
to buy the flat right and it hasn't been improved
upon or extended or anything like that of the course
of the last twenty thirty years or whatever it might be,
that person might not have had any dealings with that
(18:44):
freeholder on extensions, lease extensions, you know, changes, and find
out how engaged they are. Because other than you receiving
a notification in the post saying your ground renters do
this year and this is what it is and this
is your service charge paying those two figures, that's the
only interaction that you might have with the freeholder. Obviously,
(19:06):
you can look at common areas and outside and see
how that looks and how that's maintained, and you can
make a judgment call of how the freeholder runs their
property from that side of it. But you might be
four and a half years into a five year start
or where they update that. So you need to find
these things out.
Speaker 1 (19:22):
All right, brilliant. I think we better edit there, but
the key messages this is quite complicated when you're looking
to buy a flat, do so really very carefully. Indeed, Anthony,
thank you so much for joining us today. We really
appreciate it, absolute pleasure. Thanks for listening to this week's
Maren Talk to Your Money. If you like us show, rate, review,
(19:43):
and subscribe wherever you listen to podcasts. Also be sure
to follow me and John on ex or Twitter at
Marinus w and John Underscore STEPIC. This episode was produced
by Summersiety and Moses Andams. Sound designed by Blake Maples Bettal.
Thanks of course to Anthony Emerson. Questions and comments on
this show and all our shows are always welcome. I'll
show email Azmerinmoney at Bloomberg dot net
Bloomberg Audio Studios, Podcasts, radio news. Welcome to Myron Talks
Your Money, the personal finance edition of Meron Talks Money
and these bonus podcasts, we talk about the best strategies
for making the most of your money. My Maren Sumspweb
and with me Today's senior reporter and author of the
(00:24):
Money Distilled newsletters, John.
Speaker 2 (00:26):
Stappak Hi John him?
Speaker 1 (00:33):
Okay, John. So we are now doing a housing series
and we've got one of our special guests with us.
We was speaking to Anthony Emerson. Anthony is the director
of mortgage brokers Trinity Financial, London based firms specialize in
bespoke mortgage advice and all sorts of other things. And
in this episode we are going to talk to him
about freeholds and leaseholds, What is the difference, how did
(00:54):
this happen and what is best for you now? Anthony, Hello, welcome, Hello,
Thank you for having me Anthony. When people go out
in the UK, or in this particular case, in England
and Wales, John, do they do this in Wales? This
is a good question.
Speaker 2 (01:11):
I think they do in Wales.
Speaker 1 (01:13):
It's terrible.
Speaker 2 (01:13):
I see I'm the talking squad here and we don't
have lease hold, free hold, Yes, England and Wales.
Speaker 3 (01:19):
There is leasehold in Wales.
Speaker 1 (01:21):
Yeah, okay, so England and Wales. You go out, you
buy a house or a flat, but very often you've
bought something that you think you own in its entirety,
but the truth is that you don't actually own the
whole thing, do you? How does it work?
Speaker 3 (01:36):
There are two kinds of ownership of properties, right, We
have a freehold, where you own the building and the
land on which the building sits. And then you have lethold,
where you own a part of the building demised by
the outline of your title plan, but not actually the
land on which that property sits. And I think it
(01:57):
all heralds from the feudal days of all where royalty
and gentry owned most of the land in England and
they subdivided it and created properties for their people to
live in, but didn't actually want to relinquish ownership of
the land, so they created a lease allowed a property
to be built on that land, and then the lease
(02:18):
was granted for a period of one hundred and twenty
five years or so, and at the end of that
period the hand of the land back and whatever was
on it and that has basically ended up in the
situation that we're in today.
Speaker 1 (02:30):
It sort of makes sense if you think about it.
If you're a landowner and you own a piece of
land and you build flats on it, it's quite difficult
to divvy up the land between the individual flat owners.
So in some ways, when you look at it makes
sense for the ownership of the land to be separate
to the ownership of the flats.
Speaker 3 (02:46):
It does. Indeed, especially when you've got quite a number
of flats on one particular parcel of land. The footprint
of that land could be quite small and you could
have fifty sixty flats up above it. Who owns it,
who controls it, whose response for it? And that's kind
of why the freeholder is responsible for the maintenance of
the building and the outside areas and what have you,
(03:08):
and the leaseholders are responsible for everything within the demise
of their title plan, within their walls and their windows.
Speaker 1 (03:15):
Yeah, but this all came to something of ahead a
few years ago when we found that the house builders
were building actual houses as lease holds rather than freeholds. Right,
So they were sticking up these houses. People were buying
them thinking that they bought a house and they owned
it out right, only to find that they actually bought
a leasehold, and so they owed ground rent to the freeholder.
Because you have to pay a rent to the freeholder annually,
(03:37):
which is called the ground rent. It's normally very low,
but in these cases it ended up being rather higher
than people expected. And then of course they were also
best subject to service charges. Now that's been outlawed, Right,
you're no longer allowed to sell a house as a leasehold?
Is that right?
Speaker 3 (03:52):
In certain circumstances, I believe they're still allowed to do it.
I can't give you the specifics of those circumstances, but
in general now it is is not really seen as
something that is done. Most of that new developments where
there are houses being built are sold on a freehold title.
Speaker 1 (04:08):
Okay, so these days when you're thinking about this, it's
really flat that you need to think about. Yeah, is
it possible to buy a flat freehold?
Speaker 3 (04:19):
Generally speaking, lenders don't like freehold flats because of the
fact that, by the nature of a flat, if you
own the flat, there's generally a flat above you or
another property within that parcel of land, and the lenders
are very very cautious about lending against that flat in particular,
because if they try and repossess that flat and the
(04:41):
person is also the freeholder, they might also be a
little bit more difficult in the repossession process. And generally speaking,
the reason that lenders like leases where the owner doesn't
own the freehold as well is because of the fact
that they find it easier to go down the repossession
route given the way UK law were.
Speaker 1 (05:00):
Okay, interesting, that was not the answer I was expecting. No,
I didn't. I didn't know that was part of the
land of thought process. So interesting, Okay, So what are
the downsides of owning a lease hold flat? Why would
you not want this?
Speaker 3 (05:16):
I think it comes down to control, all right. If
you buy a lease hold flat and you have a
management company or a separate freeholder who's in charge of
the property, your reliance on a third party entity to
do their required maintenance programs. They decide the service charges,
(05:36):
they decide the upkeep of the building, and you're at
their mercy. Whereas if you own the lease but you
also own a share of the freehold itself, then you
and the other parties within the units or the block
should I so would be able to decide between yourselves,
how you want to maintain the building, whether or not
(05:59):
you want to repaint it on a five year rotating cycle.
How you want the common areas maintained, how much that
common area cost to maintain, Because all of the people
who own the freeholds of these units make a margin
of profit on top, because otherwise why would you be
doing it, And that level of profit will vary from
(06:20):
person to person depending on how unscrupulous that freeholder might be.
The biggest thing is that control. If you own that freehold,
you can decide all of those aspects. You could also
decide fundamentally. The big thing is when you would like
to extend that property. You'd like to put a loft
on top, you'd like to extend out the back only
(06:40):
you and the flat upstairs. If you're a Victorian house
split into two flats, need to decide between you. If
you're both okay to go ahead. You can extend the
property in a way you go. You don't have to
pay any amount of money over to the freeholder to
get their permission to be able to do it.
Speaker 1 (06:59):
Okay, so that it works for Anthony. For a Victorian
house with two or three flats in it, you own
the freehold together, you divided up between the flats based
pro rauter or floor space or whatever it is. However
you decide to do that, do you only share the
freehold each? You can chat with your neighbors above you
or below you to work stuff out. But what if
you're in a large nineteen thirties block of flats in
(07:21):
central London and there are two hundred and eighty of you?
How are you going to organize it then as a
share of freehold.
Speaker 3 (07:30):
So the share of freehold company can themselves appoint a
management company to look after the management of that block.
So you then become the clients if you like. Who
then decides the management company's service criteria. They keep performance
indicators and all the other bits and pieces and decide
(07:51):
how much you want done, how much of the garden
work you want done, how often you want the lift service,
how much you want the common areas cleaned, et cetera.
You have that ability to control it, and you'll have
like a body corporate kind of setup where you could
have an annual general meeting and decide for the year
ahead what kind of insurances upgrades you want to make,
(08:13):
what kind of maintenance programs, you want to have, and
you'll know what those costs are, Whereas if you don't
own a share of the freehold and you are reliant
on a totally separate third party, they get to make
all of those decisions on your behalf, irrelevant to what
those costs might be.
Speaker 1 (08:30):
The other really important thing when you buy a leasehold
is how long the lease is. Right, So, if you've
got a lease that is nine hundred years long or
one hundred and fifty years long, or however many years,
it wouldn't necessarily affect the value of the flat as
the years take away. But if you find yourself holding
a leasehold that has only say sixty or seventy years
(08:51):
left on it, then suddenly you really are just renting
somewhere right as opposed to owning somewhere, and you need
to start thinking about extending that lease, which is if
it's going to cost a lot, because you've got to
buy another forty years, fifty years, one hundred years, nine
hundred years of the right to reside off a freeholder.
So the length of the lease affects the value of
the flat.
Speaker 3 (09:11):
That's entirely true. Yes, there is a point in which
there is the term called a marriage value, and that
timeline is generally seventy nine years of lease length remaining
where marriage value happens when if you extend the lease
on the property at that point or below that point,
from seventy nine downwards, there is a fundamental change in
(09:35):
the value of the property because of the fact that
you now have a longer, more desirable lease. So although
you are paying to extend the lease when it's below
seventy nine years, your value of your home should fundamentally change.
Whereas if you've got a ninety year lease and you
want to extend it out to two hundred years, nine
hundred years or whatever it might be, there isn't necessarily
(09:57):
a change in the valuation of your property, but there
is obviously a change in the desirability of your property.
Speaker 1 (10:03):
And there is a new Leasehold Reform Act coming through
right for England and Wales correct which is going to
change a lot of the infrastructure inside which leaseholds work
and attempt to make it easier to extend your lease,
removing marriage value completely, which seems a lot fair on
the freeholders. Maybe ground rent being slashed so you can't
(10:26):
charge people these ratcheting up fees every year, and changing
some of the qualifying criteria to make it easier to
get the right to extend your lease. All this kind
of thing, and I think also a full ban on
leasehold houses as discussed earlier. So all these things that
are coming down the road, and that should mean that
it's easier or maybe more desirable to buy a lease
(10:47):
hold flat in future.
Speaker 3 (10:49):
There's nothing fundamentally wrong with the lease hold flat. If
you've got a good management company and you've got the
right length of lease, etc. A lease holder really doesn't
have that much of a negative effect on ownership and
enjoyment and all the other bits and pieces. I think
the problem really comes when you have a poor freeholder
(11:11):
who doesn't really do their required portion. And I think
the leasehold Reform Bill will make it easier for people
who are in a position where they haven't got a
decent freeholder to be able to get out of that
position and be able to get to a point where
they could extend their own lease, start their own management company.
(11:32):
The least extensions are going to go from extending by
ninety years to nine nine hundred and ninety years. We
are going to make it cheaper easier to extend the
lease and buy the freehold. Like you said, remove that
requirement to pay the marriage value, because one of the
biggest arguments is always exactly what is that marriage value worth?
Is the freeholder who decides the marriage value and then
(11:54):
you have to go to arbitration to be able to
try and work out between you a number that everyone
agreed upon. And I think that is really what puts
a sour taste in everyone's mouth to be able to say, actually,
you know what, now, when I come to this point
with my leasehold flat and I need to extend it,
there should be more of a structure that is allowing
(12:16):
me to be able to achieve what I want to
achieve without all the nonsense that goes with it. That
Leasehold Reform Bill is also going to remove the presumption
that lease holders have to pay the landlords legal costs.
You know, we have to extend the access to redress
schemes for lease holders where the freeholder managers the property directly.
We have to ensure that there's relevant property sales information
(12:38):
is provided to base holders in a timely fashion from
the freeholder, et cetera. So there are things in that
Leasehold Reform Bill that will help. It just hasn't yet
been put in place fully to my knowledge, I think
it's still pending.
Speaker 2 (12:52):
So let's say I am a a fostained buyout or
someone in the market for a flight to leaven rather
than as an investment property. What would you see is
the minimum viable lease hold? You know, if I go
and rate move, should I be saying that I'm not
taking that unless it's at least one hundred and twenty
five years or you know, one hundred years. Is that
(13:13):
a consensus on those.
Speaker 3 (13:15):
The general consensus is that lenders aren't overly comfortable lending
on a property where the underlying lease at the point
of application is eighty five years or under. So it's
not quite the seventy nine And because of the fact
that it's eighty five is because there was a qualifying
period where you had to own the property for a
two year period before you're allowed to apply for a
(13:37):
lease extension. You know, the lease whold reformable will do
away with that qualifying period. But it's eighty to eighty
five years at the start of the term, and then
a lot of lenders have a minimum period remaining at
the end of that more wach term. So when you said,
what am I looking at, which one should I get
away from? The shorter the lease, the more a narrow
(14:01):
the field of lenders that you can pick your finance
from because of the fact that their criteria might not
allow you to apply to them because of the underlying
least lend.
Speaker 2 (14:11):
Let's see, I'm thinking I'm going to live in the
flat for five years, I should be conscious of the
fact that the lease is going to be five years
shorter by the time I come to sale. So for example,
if I bought one at ninety, then I'd be getting
to the eighty five by the time I was going
to sell my flight, And unless I wanted to go
through the rig midle of actually extending the lease, that
(14:33):
would present me probably with smaller market potential buyers. Is
that fair to say?
Speaker 3 (14:38):
That's absolutely right. It's something that you don't think of
every day because of the fact that you only tend
to think about these things that either the point of
purchase or the point of sale, but not in between.
And a lot of people find out to their detriment
that they're now in this position where they have to
either apply it for the least extension to the freeholder
(15:00):
because of the fact that they are beyond the qualifying period,
and then they can allocate that extension to the purchaser,
and then the purchaser has to extend the lease at
the point of completion to allow them to have full
choice of lenders, etc. It extends the purchase journey, it
extends that cost of that purchase, and a lot of
(15:20):
people just can't be bothered to actually go down that
road because as a first time buyer, everything's new to you,
and then to throw this added level of complexity in
might make your property less desirable and therefore achieve a
much lower sales price. You could always extend the lease
yourself and then put it on the market with a
long lease, but again you're probably looking at the fair
(15:42):
few thousand pounds of costs to be able to extend
that lease, and then if you are below that sort
of seventy nine years and whatever you then they might
still be a marriage value at this point in time,
and you don't quite know what that cost is. There
are calculators on the web where you can go and
you can enter in your ground rent and your service
charge and all the other lease lengths, and they can
(16:05):
give you an approximation of what it might be, but
it is just an approximation. And like I was saying earlier,
you've got that situation where people have to then maybe
possibly go to arbitration between the freeholder and yourself to
work out exactly what that price is. And that's where
I think lease holders who are trying to sell into
(16:25):
the market need to do their homework and need to
get the property right from a legal perspective and put
it into the market in its best light to be
able to achieve the best sales price.
Speaker 2 (16:37):
Yeah, and a lot of this sounds like the really
fundamental issue is whether or not your freeholder is a
decent individual or not or a professional. Is there any
way to find out more about the situation where the
freeholders other than by asking other people? Well, asking other
(16:58):
people in the flights may be a good way to
do it, But is that anything you would can said
of in terms of I did due diligence If you're
looking at a lease old flat.
Speaker 3 (17:06):
We've always said to our clients, and it's something that
some people do and some people absolutely shy away from,
but go to the building, go knock on some of
the other doors, because you're probably not going to get
the most honest answer from your vendor, the person selling
the house. But if you knock on the doors of
maybe it's a unit with three or four flats on it,
(17:28):
go knock on the other doors, find out if they
are the owners, and ask what their opinion is of
the free order, Have they done anything that they required
permission from? What was the journey like? Because that's the
only way that you find out any feedback, because there's
no register, if you like, as to what that person
and how they handle their duty. And people change. They
(17:49):
might be great for a couple of years and then
have personal circumstances that change, and then they might not
be so great. And that's kind of why that whole
ability with the leasehold re format to be able to
get out of that situation and buy your freehold and
become your own sort of managing agents, if you like,
would be much much better for clients.
Speaker 1 (18:07):
Interesting, isn't it. I mean, although you say that you
might not get the full truth from the vendor, they're
kind of legally obliged to tell you all this stuff, now,
aren't they. I remember the story we've had recently and
the press about the people who had to take back
the house with the moths in central London because they
hadn't been told the full truth about the moth infestation.
Speaker 3 (18:23):
I get that, but I think it depends whether or
not your seller has actually had any dealings with them
other than just paying their ground rent. If you want
to buy the flat right and it hasn't been improved
upon or extended or anything like that of the course
of the last twenty thirty years or whatever it might be,
that person might not have had any dealings with that
(18:44):
freeholder on extensions, lease extensions, you know, changes, and find
out how engaged they are. Because other than you receiving
a notification in the post saying your ground renters do
this year and this is what it is and this
is your service charge paying those two figures, that's the
only interaction that you might have with the freeholder. Obviously,
(19:06):
you can look at common areas and outside and see
how that looks and how that's maintained, and you can
make a judgment call of how the freeholder runs their
property from that side of it. But you might be
four and a half years into a five year start
or where they update that. So you need to find
these things out.
Speaker 1 (19:22):
All right, brilliant. I think we better edit there, but
the key messages this is quite complicated when you're looking
to buy a flat, do so really very carefully. Indeed, Anthony,
thank you so much for joining us today. We really
appreciate it, absolute pleasure. Thanks for listening to this week's
Maren Talk to Your Money. If you like us show, rate, review,
(19:43):
and subscribe wherever you listen to podcasts. Also be sure
to follow me and John on ex or Twitter at
Marinus w and John Underscore STEPIC. This episode was produced
by Summersiety and Moses Andams. Sound designed by Blake Maples Bettal.
Thanks of course to Anthony Emerson. Questions and comments on
this show and all our shows are always welcome. I'll
show email Azmerinmoney at Bloomberg dot net
Host
Merryn Somerset Webb
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