Leaseholders must act now to avoid negative equity

Published: 16/04/2013

Homeowners with leasehold property are being warned to check the length of its remaining term after latest figures revealed many could unknowingly fall into negative equity.

According to research by e.surv, up to 1.43 million homes across England and Wales are susceptible to shortening leasehold terms. Flat owners are at particular risk.

Lenders are highly unlikely to grant a residential mortgage on a leasehold property with less than 80 years on the term. As a result the property will start to significantly diminish in value, trapping the owner and causing them to potentially fall into negative equity, particularly if they are on an interest-only mortgage.

Enfranchisement to the rescue

A leasehold property is, in effect, a long term rental in the sense that you have purchased the right to live there or to rent it out for a set period. You do not however own the land on which the property stands and, as a result, are required to pay a ground rent to the freeholder.

A leaseholder, however, has the right to either extend the lease or to acquire the freehold (individually if a house or collectively if a flat). In fact, the longer left on the lease the cheaper such a transaction tends to be.

GW LET lawyer, John Jones, comments:

“It is essential, if you own a leasehold property, to know the exact amount of time left on the lease to allow yourself ample time to address the situation.

“As a member of the Association of Leasehold Enfranchisement Practitioners (ALEP), we can provide specialist legal advice on lease extensions, individual and collective enfranchisement and LVT cases.”

Content correct at time of publication