If you own an apartment in the UK, it’s highly likely that you are a leaseholder. Owning a leasehold flat means you’ll have to be aware of how long is left to run on your lease and be ready to act before said lease decreases too much. In short, you may need to extend your lease at some point.
Question is, how much does it cost to renew a lease? We’ll explore that, and more, in today’s post.
First things first...should you extend your lease?
As we’ll find out in a second, extending a lease can be a costly business, so it’s prudent to renew at the right time.
As the years left on your lease dwindle away, the cost of extending rises. It could, therefore, be argued that it’s never too early to extend, but that isn’t strictly true. If you have 110 years left to run and only intend to stay in your current home for 10 years max, extending your lease would be an unnecessary expense.
The other side of the scale is much more important, i.e. never leave it too late. A short lease begins to cause a number of problems. Mortgage rates will start to rise, remortgaging becomes nigh on impossible, the value of the property drops, and selling up means narrowing the field considerably, as you’ll only be able to attract cash buyers.
Most analysts and experts recommend lease extensions somewhere around the 80 year mark, as this strikes a nice balance and keeps premiums reasonable. For a deeper dive into the subject, check out this post next: When Should I Extend My Lease?
How much does it cost to renew a lease?
Unsurprisingly, there’s no one-size-fits-all answer to the question of how much does it cost to extend a lease, as there are several variables at play, namely:
- How much your property is worth
- The length of your current lease
- The ground rent amount and the scheduled rises
- Marriage value (the value increase generated by a new lease being granted)
- The result of the negotiations between you and the freeholder
With so many permutations to contend with, giving a ballpark figure on leasehold extensions becomes difficult to say the least, which brings us to our next point...
Using a lease extension calculator
A quick Internet search will throw up numerous lease extension calculators, some of which are fantastic tools if you want a rough idea of how much your lease extension will cost. One of the best out there is this one from LEASE, which is a government funded, independent advice service for residential leaseholders.
However, it’s absolutely vital to bear in mind that even the best lease extension calculators are only useful for estimation purposes. Do not take the results given as gospel if you intend to enter into a negotiation over the premium.
A better way to proceed is to employ the services of a professional leasehold valuation expert. Yes, this is going to take longer and cost you more (in the short term, anyway) than using an online lease extension calculator, but it’s worth the investment.
Not only will you get a solid estimation to work with, you’ll also find that the best valuation surveyors will take on the job of negotiating with the freeholder on your behalf, which is often worth their fee alone.
Other lease extension costs you may need to factor in
Unfortunately, the costs do not end at the premium and the fee you’ll have to pay your valuation surveyor. On top of these, you’ll also have to add things such as your own legal fees and the freeholder’s professional costs as well.
Then there’s stamp duty to keep in mind. While this will only apply to those whose premium rises above £125,000, it’s obviously an important addition to factor into your overall costs should your lease extension be above the cutoff point.
I’ve heard about lease extension reforms, are these going to happen?
Ultimately, yes, it would appear to be almost certain that the lease extension process will undergo significant reforms at some point, although when that will be is still anyone’s guess. If you’d like to find out more about these reforms and what they mean for leaseholders, check out this excellent article by the HomeOwners Alliance.
That’s it for another week. Do take a look at these related posts if you want to know more about leases and their implications for homeowners:
- Petty’s Guide To Statutory Lease Extensions,
- Leasehold And Freehold: What’s The Difference?
- and Buying A Flat With A Short Lease: What You Need To Know
If you’re thinking of moving in or around the capital, give Petty’s a call. Regardless of whether you’re buying, selling, renting, or letting, our team of experts are always happy to offer guidance and advice on all aspects of the property market.