Extending your lease can be expensive. A big question for anyone consider it is usually: "will extending my lease increase the value of my home?"
If you’ve got fewer than 90 years remaining on your lease, this is likely to be limiting the value of your property. You have the legal right to extend your lease by 90 years and this will almost certainly increase how much your property is worth.
Why are short-lease flats worth less than long-lease flats?
Imagine that you own a flat that is identical to your neighbour’s flat. The only difference is that you have a short lease of 70 years, whilst your neighbour’s flat has 160 years remaining.
If both properties were listed on Rightmove or Zoopla, a potential buyer would be prepared to pay more for your neighbour’s flat than yours.
This is because:
- Your buyers will factor in the cost of extending a lease when deciding how much to offer you for your property
- Getting a mortgage on flats with a short-lease can be difficult, which limits you to cash buyers or auction sales
- Buyers are often put off by flats which have high ground rents. Don’t forget extending your lease also reduces your ground rent to £0
But if you were to extend your lease, these three reasons would be gone, and your flat will be worth the same as your neighbours.
How much will extending my lease increase the value of my property by?
It’s always difficult to predict the exact difference in value between a short-lease flat and one with a long-lease.
A good rule of thumb is that extending the lease of a flat with 70 years remaining will increase its value by around 10 per cent.
If your flat has an onerous ground rent then extending your lease (and reducing the Ground Rent to £0) can increase its value even more. Find out if your flat has onerous ground rent.
Ensuring your lease extension is a good investment
If you want to make sure that the value you will add to your property will be more than the cost of a lease extension, keep the following in mind:
- Only extend your lease with a formal lease extension. Read about the pitfalls of informal lease extensions
- If you have over 90 years left on your lease, ask us if we’d recommend extending. Sometimes the cost to extend will be more than the increase in value
Don’t overpay for your lease extension. Make sure you negotiate hard with your freeholder to get the right price.