When meeting new clients who are interested in releasing equity from their home, I'm often asked whether equity release companies will accept leasehold properties. The answer is more often than not…yes, however with certain caveats.
Around 2 million properties are currently owned on a leasehold basis in the UK. These leases are often originally set to 99 years or 999 years from the date the lease was set up. Older properties in the UK tend to have leases arranged to expire in 999 years, whilst new builds or retirement developments are usually shorter and can be typically around 99 years+. Typically flats tend to be leasehold, as freehold flats do incur issues with ownership, particularly when there is more than one floor.
Equity release providers usually require a minimum of 75 unexpired lease years in order to qualify for an equity release scheme. Just Retirement and more2life insist on a minimum of 75 years. Likewise LV= and Aviva equity release like to see 80 years left on a lease while Hodge prefer 90 years of unexpired lease years.
For properties built with a 999 years lease, these don’t usually cause any problems at all as they are unlikely to expire within one’s lifetime! However, for properties arranged on a 99 year lease, it may mean that the lease has reduced below 75 years depending on when the property was built. For equity release purposes this is where problems can arise as if the remaining leasehold term is below the lenders minimum then action needs to be taken.
In this instance, there are two possibilities: -
It may be possible for you to buy the freehold. Further good news is that the cost of acquiring the freehold can be paid for from the proceeds of the equity release application.
Extend the lease for a term of 90 years on top of the unexpired term of the existing lease.
Both the aforementioned solutions will not only enable meeting the criteria for the equity release companies, but also will invariably add value to your property.
Both the aforementioned solutions will not only enable meeting the criteria for the equity release companies, but also will invariably add value to your property. Basically, as the term of a lease reduces, it can have an impact on the property value and can be especially significant with expensive leaseholds in London.
The legal paperwork necessary to either extend or buy the lease is relatively straightforward and is done by the same solicitor who is acting on behalf of the equity release client. Ashford's solicitors specialise in leasehold extensions and freehold purchase. They are one of the former members of ERSA (Equity Release Solicitors Alliance).
Peter Barton, a partner at Ashfords said "I have seen over recent years an increase in the number of clients using equity release to extend their lease. Whilst the process may appear daunting we at Ashfords can take you through the process at the same time as dealing with the equity release, and it can be timed to complete at the same time.”
Additionally Peter Barton of Ashfords advises the following -
“We would always recommend speaking with your Landlord/Managing Agent to ascertain their costs in extending the lease. If those costs seem excessive it is always worthwhile speaking with any neighbours who may have extended their lease to see if they were charged the same, alternatively there are websites that contain calculators to give you an estimate of Landlord costs for extending the lease. We have found those very useful and have saved clients many thousands of pounds by enabling clients to negotiate with their Landlords."
Leasehold properties can present a challenge with regards to applying for an equity release mortgage, however upon inspection of the deeds including the lease document can unravel the exact lease criteria. Additionally, by checking the lease can also clarify any unusual rules in relation to retirement properties or sheltered accommodation. These could include such clauses such as a sinking fund, where the freeholder can make provision for improvements or repairs, or even age restrictions on who can live there.
Other issues that leaseholders are obliged to pay for, & can be too prohibitive to some equity release companies, are the service charges. These are often paid for via maintenance charges and are usually determined by the freeholder or their agent who can decide the work that needs to be done, who will does it and the ultimate cost. All these issues should be investigated beforehand, so that if issues do exist they can be resolved as part of the equity release process.
For any questions about leasehold properties or to check your eligibility for equity release, please contact Mark Rumney at Equity Release Supermarket on 07957 974826. Mark can also be emailed directly at [email protected].