Whether or not you should extend your lease is likely to depend on three things:
- How many years you have left on your lease
- How much ground rent you pay
- What you want to do with the flat: do you want to keep it, remortgage it or sell it?
When you extend your lease, you will get an additional 90 years on top of however many you have now. Your ground rent will be reduced to £0 from the point the lease extension is completed. To buy the extra years and “buy out” your future ground rent payments, you must pay a sum of money known as a lease extension premium.
This article takes into account the fact that due to changes to leasehold law, lease extensions are likely to get cheaper for people who have leases below 80 years or for those who have a ground rent which is above 0.1% of the value of their property.
Leases with fewer than 80 years left.
As soon as a lease drops below 80 years, it suddenly gets much more expensive to extend.
The price goes up because you must pay an additional fee known as “Marriage Value” to your freeholder as part of the lease extension premium. As a rule of thumb this will make your lease extension between two and three times as expensive as it would have been if your lease was extended when it was above 80 years.
Should I extend my lease now?
Under the current regime, your lease extension will get progressively expensive as the months and years tick by.
If you’ve got a mortgage renewal coming up, you might want to think about whether you’ll be able to get on a good new deal. Many mortgage lenders don’t want to lend on flats below 80 years (and certainly below 70 years), which limits your options.
Equally, if you are thinking of selling: while you can always sell something, you’re likely to have to discount your flat significantly to find a buyer.
For any of the reasons above, you might want to get on and extend your lease now.
Decided to get started on your lease extension now?
Why might I wait to extend my lease?
The Government have promised to make it cheaper for people in your situation to extend their leases.
We still don’t know how much cheaper, or when the changes will come into effect.
My lease is above 80 years, but my ground rent is high
If you have a high ground rent, then it can give you similar issues when selling or remortgaging your flat as having a short lease would.
Ground rent was made illegal on new leases in 2022, and this means buyers of flats (and their conveyancing solicitors) are put off by flats that already have a high ground rent.
Equally, many mortgage companies won’t lend on a flat if it's ground rent is above 0.1% of the value of the property, above £250, or that rises too frequently.
Should I extend my lease now?
If you want to sell or remortgage your flat, then you might well want to crack on under the existing legislation.
Why might I wait to extend my lease?
Like with short leases, the Government have promised to make it cheaper for people who have high ground rents to extend their leases.
They have said that they will cap the ground rent at 0.1% of the value of the property in the lease extension calculation. For example, imagine you have a £400 ground rent on a £200,000 flat. Due to the 0.1% cap, the lease extension price would be calculated as though your ground rent was £200.
There is a clause in the new legislation which means that if your flat was originally sold at a lower price due to the fact it had a ground rent, then this cap won’t apply – and your lease extension won’t be cheaper. We assume that freeholders will seek to argue that this cap doesn't apply in every case they possibly can.
My lease is above 80 years and my ground rent is modest
If your lease is above 80 years and you have a low ground rent, you are unlikely to have an issue remortgaging your flat – although you might be limited to the lenders. For example, Virgin Money require 85 years remaining at the point you take out the mortgage.
The same isn’t true if you want to sell your flat.
If your lease is above 100 years, a potential buyer is not likely to be put off by the length of a lease. However, as it gets closer to the “80 year mark” then it will get increasingly less attractive to purchasers. This is because they’ll know that they’ll either need to do a lease extension while they own the flat, or discount the price when they come to sell it.
Should I extend my lease now?
The saying goes that “The best time to start was yesterday. The next best time is now.”
This has historically been true for lease extensions – the price will go up as your lease gets shorter and house prices increase.
Doing a lease extension is a long and windy process. Getting it done now means that you can sell or remortgage at any time.
Decided to get started on your lease extension now?
Why might I wait to extend my lease?
If your lease is above 80 years, and you have a fairly modest ground rent – there is also far less incentive to wait for reform.
The “big wins” within the legislation are to make it cheaper to extend for people with short leases and high ground rents. You have neither.
The price of lease extensions are calculated using key rates and percentages – and it is not impossible that these will be set at a less favourable level than what is currently agreed. This would make lease extensions more expensive for people in your situation.
We can’t tell you whether to extend your lease or wait. It is a choice you need to make, based on your situation.
Generally, for people who are planning on waiting we are encouraging them to decide a date in the future when they’ll start their lease extension – and save for it as though it will be done under the current regime.
If that date comes around and their lease extension will have been made cheaper by reform, that’s great! If reform has still not materialised, they can choose to crack on under current legislation.
Want to pay the lowest price for your lease extension?
Talk to an expert about how we can help.
