I've posted this to the legal newsgroup but know that there's a lot of knowledgeable people here, so I hope you don't mind a cross post. If I buy a new house, I'll have to decorate it and DIY, so it's not completely off topic ;)
I have been viewing some flats that are for sale as the monthly mortgage payments seem to be the same or better than paying a landlord rental!
However, the flats are leasehold. I have never bought leasehold before and from a very limited amount of googling, it seems to be a bad idea because no-one wants to buy (or lend) a flat with a lease that has less than 80 years left. It seems extending the lease can cost thousands of pounds.
So is buying leasehold a bad idea? Is it only ever good if you want somewhere to stay for a short term, so that you can sell before the lease gets to 80 years?
Its not uncommon for leasehold to be for 999 years, 125 years or 99 years all from when built so you need to look at each one individually rather than as a generic 'leasehold'.
You really don't want a freehold flat! Nearly all flats are leasehold, this does give the owner of the lease some control over the property with respect of communal maintenance and the use/occupancy of the property.
The important thing is who owns the lease of the property, in my case the leaseholder is a limited company solely owned by the occupants of the individual flats. So effectively the owners control everything through the elected directors of the company, i.e. three of the owners. Day to day management is outsourced to a property maintenance company who look after collection of service charges (very reasonable set by the directors), commmunal gardens and paying the gardener, cleaner, etc.
If 75% or more of the leaseholders in a block wish to do so they have the right to buy the freehold. The freehold would then usually be held by a company jointly owned by the leaseholders who would still BE leaseholders, just with a different freeholder who they now can control.
Mortgage is always cheaper than like-for-like rent as rent is mortgage plus maintenance plus insurance plus decoration plus running costs plus plus plus plus. It's like pointing out that the price of two slices of bread is less than the price of a sandwich.
There are some freehold flats in England, I viewed one once in Worthing. Can be a cheap option for cash purchasers.
Mortgage lenders won't touch them if there is less than about ?60 years to run and as the lease shortens, the cost of extending it increases.
Even more important than the length of the lease is the cost of the annual service charges, which in the case of a mansion block with constant H/W, a lift and a concierge can be thousands a year. You are also liable for a share of any upcoming renovations. Overcharging for service charges is a nice earner for some property spivs. People who exercised their right to buy ex LA flats in blocks of more than 5 stories have been used as cash cows to pay for repairs to the building (repairs which L/A tenants in the same building are immune from). In London there are examples of right-to-buy hi-rise flat owners being stiffed for £30K or more by the L/A.
If the building has a flat roof then upon renewal, building regs Part L (2006) insists on thermal upgrading. This only benefits the people on the top floor, but the cost is shared among all leaseholders.
A leasehold flat effectively belongs to the freeholder at the end of the lease.
Flats are invariably leasehold because freehold implies ownership of the land - and most of the flats are not in direct contact with any land.
The best arrangement is when the freehold is owned by a limited company belonging to the leaseholders. When you buy such a flat, you get a share in the 'landlord' company as part of the deal.
Whoever owns it, you will have to pay an annual maintenance charge to the landlord (in addition to any 'ground rent') to cover such things as insurance of the whole building, maintenance of the communal parts, utility bills (gas, electricity, water) used by the communal parts, if appropriate and (maybe) maintenance of any communal gardens. You'll be responsible for your own contents insurance, Council Tax, and utility bills for energy and water consumed in the flat itself.
If the freehold *is* owned by the leaseholders, there's nothing to stop the 'landlord' (of which you will be a part) from renewing the lease and extending it for a much longer period in order to avoid the 'short lease' problems to which you refer.
I own a holiday flat in Hampshire whose freehold is owned by the leaseholders. All the leases were converted to 999 years with effect from some date in 2001 - so I think that will more than see me out!
If the freehold is owned by a commercial company over which the leaseholders have no control, it's a different kettle of fish because the landlord has effectively got you over a barrel as far as maintenance charges, lease renewal, etc. are concerned. You need to understand the exact setup before purchasing a flat, and to get accurate figures as to the overall cost of ownership. Buying a flat is a perfectly reasonable thing to do as long as you are aware of all the implications.
Not necessarily: if the owner bought it for 50p in the 1950s, but it's now worth a million, they don't have to set the rent to match the paper value they can set it to be whatever they like as the mortgage is either tiny or fully paid off. In some areas rents may be lower than mortgage payments due to the local market.
Don't forget also we're at historically low mortgage rate so the question isn't what you're paying now, but what you might pay if rates go up to 6-7% (once you come to the end of a fixed term deal, you may discover there aren't cheap fixed rate deals any more).
The sale value of such properties is usually based on potential rental income minus expenses and profit margin, through to the lease expirey, given no expection of any future resale value above this.
I haven't read it (as it doesn't work), so I don't know what it claims, but
It may be that a block which is originally set up as commonhold looks exactly the same (to the occupants) as a block that is set up as leasehold, which is then bought out, placed into a company, and managed by the tenants.
But that act of buying out the lease does not make the property commonhold. It remains the leasehold that it originally was.
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