Invest in your lease

Mary-Anne Bowring, Managing Director of Ringley, a leading Managing Agent, and a Governor for the Institute of Residential Property Management (IRPM) tell us why now is a good time to start thinking about extending a lease. The UK housing market has taken a turn for the worse: according to Nationwide house prices have fallen for 10 months in a row and are at their lowest level since early 2006. However, it's not all doom and gloom: this economic downturn means that extending a lease on a property is more affordable. Why would I want to do that, you ask? If your property has a short lease, let's say 70 years, it will start to decrease in value and it will be difficult to sell. This is because mortgage lenders typically will not consider home loans on properties with short leases. Usually they require at least 30/40 years unexpired on a lease after a 25 year mortgage has been paid off. The cost of extending a lease depends on how long it is, for instance, extending a 60 year lease will be more expensive than extending an 80 year lease.

It will also depend on how much your property is currently worth, hence why extending your lease in a falling market is much cheaper. For example, before the 10% market fall the cost of extending a 60 year lease on a £198,000 flat would have been approximately £26,900. However, in this current climate it would probably cost in the region of £24,600 because the flat would now only be worth £180,000. * Extending an 80 year lease is much cheaper as there is no marriage value to pay (marriage value is the increase in the value of the property as a result of extending the lease). For example, extending the lease on a flat worth £198,000 with an 80 year lease before the 10% market fall would have cost around £6,400.

Now it would cost around £6000 because the flat would be worth just £180,000. * Although you may think you are safe with an 80 year lease, before you know it the lease will soon drop to 79 years and the premium will become much higher. Therefore it makes good financial sense to take advantage of your statutory right to extend your lease by an additional 90 years and get the ground rent reduced to peppercorn. If you have owned your property for two years then you can claim your right, even if you don't live there.

Tips Get equipped. Find a copy of your lease and know what your ground rents are Find a competent surveyor and ask them about the 13 valuation variables to assess their expertise Don't get fooled into buying a short extension with a high ground rent: you're entitled to add 90 years extension with no ground rent Your original lease doesn't get destroyed - it becomes extended via a deed of variation. Register the deed of variation at HM Land Registry so it becomes part of your propertys title. For tactical advice on lease extensions and to obtain a step by step guide visit www.leaseholdguidance.co.uk. * the valuation figures suggested are based on a capitalisation rate of 6%, deferment rate of 5%, original 99 year lease, ground rent pattern of £100 rising every 33 years to £200 then £400. The term unexpired at the 2 valuations being 80.84 years and 60.84 years respectively