Purchasing Freehold

[b0rn2sk8]

That's because you're mistakenly tarring all leasehold properties with the same brush due to the scary headlines involving exponential rent increases.

I'm not, I don't read the sensationalist rubbish contained in the daily fail etc. I'm not wanting to turn this into a leasehold vs Freehold debate but below is the reason why I and many others wouldn't consider one.

The TLDR is it's not worth the hassle and likely costs you more money long term that just buying a freehold to being with (especially if you don't buy it at the first opportunity).

When you look at lease hold houses objectively the only person that wins is the developer. The leasehold gives no 'added value' for the 'owner'. The below only applies to discrete houses, not flats. Not that I'd buy a flat unless I for some reason needed to live in the big smoke.

You are purchasing a new build so the price is already premium over a equivalent used property. But the 'discount' for it being leasehold over freehold on the initial purchase is next to nothing. Not only that to shift it later down the line you have to price it way below what an equivalent free hold house just to get people in the door. It's a new build tax double whammy. If the market turns into a buyers market with plenty of choice (like now), you'll have to discount even further.

Not only that buying the freehold gets more expensive over time, every year you leave it costs you another fee, after a period of time those fee's start to increase. The cost to buy out down't go down the more years you pay.

Then there is the hassle of it all, to buy the leasehold you need to pay someone to deal with the legal legwork for you. When you are buying a used leasehold house you rarely get to see the actual terms/contract before you have solicitors working on it. At which point you are down cash if you don't like what they say. You also have the hassle of keeping an eye on the developer to make sure they don't screw you. What if you can't afford it when they offer you the first refusal? They'll sell it to someone else.

So who wins in all of this? Well it's the developer of course, £150/year doesn't sound a lot for an individual (the OP's is a cheap one) but multiply it up over the whole estate and suddenly its a nice little earner. It's just a cash grab at the end of the day and a way to take advantage of a booming market by monetising the properties they have already 'sold'.

There is also the principle of it, would I support this kind of dodgy behavior? No and I vote with my wallet.

 

[adidan]

Irrespective of whether it's right or wrong to overlook leaseholds when buying a house the fact is many people do.

Whether it's right or wrong, i don't care, i wouldn't feel comfortable living in a house to which somebody else had ownership of the lease.

Is it daft? It doesn't matter, the end result is the same, i'd be filtering for freeholds in house searches.

Edit: Having said all that if it was to buy to let out that's a different matter, that's business, but you can be damned sure the seller won't be getting the price they want out of me.

 

[PurplePhoenix]

Buy it now,. I had an issue on my flat that someone brought the lease during my dale and had no contact details, no management company in place and took months for them to reply their registered address.

 

[SeatIbiza]

You're in the period of when this is the cheapest it ever will be, so it makes absolute sense to do it. I've never seen a fixed multiplier to be able to buy the freehold out though which is a good thing as no arguing over valuation.

I know it's only £150 a year but I'd be concerned about that RPI increase (which I assume is not capped/collared). What you don't say is whether that is yearly increases after 10 or reviews every X(10?) years. For example, 2009 to now with RPI would increase your ground rent from £150 to £203.49, an increase of over 35%, if it follows suit over the next 10 years that £203.49 would be £276 (the power of cumulative interest). This translates to a cost to purchase the freehold of over £5k for the same thing in 8 odd years...and then it will increase forever during the term to the point it becomes rather untenable. If it increased by that amount over the 999 years your ground rent at the end (not that we'll be alive mind, but someone might) would be £4.5k per year based on 3% per annum...

 

[montymint]

I know my situation is a little different but the house I'm buying it's not worth buying the lease out. There's approx 960 years left @ £8 a year ground rent.

The cost to buy it out would be approx £2k with solicitors fees, which is more than 200 years of rent.

 

[hughtrimble]

Definite buy. Leaseholds are always seen as less desirable than freeholds by purchasers (though some 'share of freehold' can be a bit of a pain!).

 

[MrRockliffe]

I don't know much about this, but it seems that it would add a lot of security if you bought it, and no apparent downsides, other than the cost

 

[Psycho Sonny]

I don't know much about this, but it seems that it would add a lot of security if you bought it, and no apparent downsides, other than the cost

tbh the cost shouldn't really be a downside as he should be able to get a loan to cover it pretty easy and spread the payments over 5 years. works out at less than £100 a month.

it will also pretty much straight away add value onto his property over and above the outlay i'd imagine.

 

[Blackjack Davy]

Absolutely buy it leaseholds are often sold on to goodness knows who who use it as a licence to print money i.e upping the ground rent and charging for "services". You literally do not own the land the bricks and mortar sit on until you do and you may find if you don't purchase it now it may be sold on and the price of purchasing from them will rise astronomically. If you can get it cheap do it while the opportunity is still there.

 

[Blackjack Davy]

I know it's only £150 a year but I'd be concerned about that RPI increase (which I assume is not capped/collared). What you don't say is whether that is yearly increases after 10 or reviews every X(10?) years. For example, 2009 to now with RPI would increase your ground rent from £150 to £203.49, an increase of over 35%, if it follows suit over the next 10 years that £203.49 would be £276 (the power of cumulative interest). This translates to a cost to purchase the freehold of over £5k for the same thing in 8 odd years...and then it will increase forever during the term to the point it becomes rather untenable. If it increased by that amount over the 999 years your ground rent at the end (not that we'll be alive mind, but someone might) would be £4.5k per year based on 3% per annum...

It may be £150 now but there is absolutely nothing to stop whoever owns it from charging whatever the heck they like case in my place they doubled the ground rent in one year. Do I have any say over it? Nope. Can I do anything about it? Apparently not.

 

[BYTEr]

Thanks for all the replies, its confirmed my believe I need to purchase the freehold.

When you check the T&C's of the leasehold, it's very reasonable, and honestly, shouldn't really put anyone off, it's £150 per year for the first 10 years, then will only increase by the RPI every 10 years and it starts at 999 years.

Unfortunately, the horror stories and the fact their is no reason it exists to be a leasehold except for the developer to get a few extra quid puts people off, rightly or wrongly.

I've had a quote from the solicitors for £700 to purchase the freehold, on top of the £3750, so total to buy will be £4450, valuations are not needed, the firm have also done plenty of these transactions with the developer so should be smooth and only take a matter of weeks to complete.

I'm going to see if my mortgage provider (Halifax) will help with the purchase, but even if not, it's not a massive outlay to hopefully have more interest when it comes to sell, will also apparently add 1% to the value of the property (about £2300).

Thanks all.

 

[hughtrimble]

it will also pretty much straight away add value onto his property over and above the outlay i'd imagine.

I'd be surprised if the OP doesn't have to split the marriage value with the current freeholder (i.e. pay them 50% of the amount the property's value has been increased by with it now being a freehold rather than leasehold).

Edit: that looks to only be £2300 (really? Is that all the value has been increased by @BYTEr )

 

[Semple]

It may be £150 now but there is absolutely nothing to stop whoever owns it from charging whatever the heck they like case in my place they doubled the ground rent in one year. Do I have any say over it? Nope. Can I do anything about it? Apparently not.

I would urge you to seek legal advice as what you've been told is wrong. The freeholder cannot just charge whatever they like, what they're allowed to charge is outlined in your lease agreement. A lot of leases will have rent reviews which inform you how much your ground rent will increase and how often the rent review will be. Obviously a lease extension may change some of these terms, but assuming you're still within your fixed term, you're only legally liable to pay what is outlined in your lease agreement.

 

[SeatIbiza]

I'd be surprised if the OP doesn't have to split the marriage value with the current freeholder (i.e. pay them 50% of the amount the property's value has been increased by with it now being a freehold rather than leasehold).

Edit: that looks to only be £2300 (really? Is that all the value has been increased by @BYTEr )

There would be no marriage value to this - that only applies to leases below 80 years (which this is far from being) - this is also slightly different as that is applicable to enfranchisement

I'd be surprised if the OP doesn't have to split the marriage value with the current freeholder (i.e. pay them 50% of the amount the property's value has been increased by with it now being a freehold rather than leasehold).

Edit: that looks to only be £2300 (really? Is that all the value has been increased by @BYTEr )

There would be no marriage value to this - that only applies to leases below 80 years (which this is far from being) - this is also very different and marriage is applicable to enfranchisement to extend the lease under the Act.

As per OP, this is a fixed valuation of 25X GR - so why would there be marriage value? The only way this could vary would be if the GR increased and marriage value still wouldn't apply...

 

[Semple]

then will only increase by the RPI every 10 years and it starts at 999 years.

Do you have the exact wording from your lease contract regarding the rent review? - more for my curiosity.

Mine says:
"The revised rent for any review period is to be determined at the relevant review date by multiplying the initial rent by the latest index value of the index last published before the relevant review date and dividing the result by the base figure"

Obviously that calculation is much different to just an "increase in RPI".

 

[hughtrimble]

There would be no marriage value to this - that only applies to leases below 80 years (which this is far from being) - this is also very different and marriage is applicable to enfranchisement to extend the lease under the Act.

As per OP, this is a fixed valuation of 25X GR - so why would there be marriage value? The only way this could vary would be if the GR increased and marriage value still wouldn't apply...

Very useful to know, thank you. This is not what I was told when discussing it with my current freeholder during some cursory discussions about it. Naturally, a solicitor would have been involved at any more in depth stages, but it's good to know.

 

[Mercenary Keyboard Warrior]

Do you have the exact wording from your lease contract regarding the rent review? - more for my curiosity.

Mine says:
"The revised rent for any review period is to be determined at the relevant review date by multiplying the initial rent by the latest index value of the index last published before the relevant review date and dividing the result by the base figure"

Obviously that calculation is much different to just an "increase in RPI".

Thats odd, since it doesn't mention the starting index value, in direct or indirect terms.

I would expect the formula to be new R = (Initial R * (C-O)) / R................ where R is rent, C is current index and O is old index.
Indexs dont tend to be constantly reset, the index may be say 160 (meaning its up 60% vs the start point).

Thats either very badly written or they have another bit to go with it.

 

[SeatIbiza]

Very useful to know, thank you. This is not what I was told when discussing it with my current freeholder during some cursory discussions about it. Naturally, a solicitor would have been involved at any more in depth stages, but it's good to know.

You want a surveyor really but, bottom line, if your lease is above 80 years, then there is no marriage value. Commonhold and Leasehold Reform Act 2002: https://www.legislation.gov.uk/ukpga/2002/15/section/136 - S136 (3).

Who is your freeholder? individual or corporate?

 

[fartingspartan]

They'll probably scrap leaseholds for houses in a year or something, we got stung for £1500 stamp duty, when 3 weeks later they changed the rules for first time buyers...

Suck it up - My stamp duty is £20K on £460K house that I am about to buy and there is talk of them changing it in future to house sellers pay stampduty - so when I come to sell it....

In terms of risk of someone buying leasehold etc - I think this is a lot less than it used to be due to bad press recently - Also - I am sure they have to communicate this with everyone well ahead of time giving you chance to purchase - Also not sure the new owners could change the ability to buy it at the rate stated - though what the "current annual lease hold" is at that point might be the only variable.

Personally - I would always buy a freehold over a leasehold - but this comes down to personal preference and history - I had never heard of leasehold till I moved to England and its alien to many people not from new build background.

Maybe look at different ways of funding it - put it across interest free cards etc - Its all personal preference and risk appetite - bit like my sleepless nights about should I go for 5 year or 10 year mortgage....

 

[Skillmister]

It may be £150 now but there is absolutely nothing to stop whoever owns it from charging whatever the heck they like case in my place they doubled the ground rent in one year. Do I have any say over it? Nope. Can I do anything about it? Apparently not.

And this sort of misinformation is exactly why people like OP end up scared about owning a leasehold property.

They cannot just increase the rent as they please unless those are the terms that you signed up to when you took out the lease.