Getting a Mortgage on a Leasehold Property
Find out how to secure a leasehold mortgage
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Leasehold ownership is very common across the UK, especially in urban areas where there are a large number of flats, apartments, and multiple-occupancy properties. But, if you want a mortgage on this type of property, there are some important points to understand.
This guide explains what kind of mortgages you can get on a leasehold property and the specific requirements that come into play. You’ll also learn about what you should be wary of, and where to find expert advice.
Keep reading for all the details or click on a link below to jump straight to a section…
Can you get a mortgage on a leasehold property?
Yes, it’s definitely possible, there is a significant amount of leasehold properties in the UK with mortgages. But, not every property will be the same and there can sometimes be added difficulties or steps in the mortgage process.
The extent will largely depend upon how long is left on the lease. Typically, the shorter the lease, the harder it can be to secure a mortgage. You’ll struggle to find lenders around the lower end of the spectrum with 40-year leases. Yet, each lender will have its own rules covering minimum leasehold terms it’s willing to offer a mortgage on.
How does a leasehold work?
This is when you own a property, but not the ground beneath it. Freehold is when you also own the land itself. So, with a leasehold, you are essentially leasing from the freeholder (sometimes called a landlord). As a result, you pay rent for using their ground. With leaseholds, although you own the property, it’s only for a specified amount of time.
Some leases can be very long, up to 999 years. However, others will have a much shorter time frame of roughly 100 years. But there can also be much shorter minimum leases of 40 years. So, your exact leasehold arrangement does depend on the property in question.
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Many of the eligibility requirements will be similar to a standard mortgage. But there can be some nuanced differences with leasehold properties that you should be aware of.
- Time remaining: the time left on the lease will be a key factor for most lenders. Any leases below 80 years can significantly devalue a property. So it’s important to check the remaining time and approach the most accommodating lenders. You can also pay to extend the lease, but you’ll need to have owned the property for two years first.
- Loan-to-value (LTV): some lenders will have stricter requirements for leasehold properties when it comes to the loan-to-value (LTV) ratio. If it’s a new build flat or house, the LTV cap can be even lower. This could mean that you need to put down a larger deposit of at least 15-20% to access the best deals and rates.
- Property type: the property itself can make a difference with lenders, especially if it’s a non-standard construction. If the leasehold property has distinct features or is built in an unusual way, you may need to deal with a specialist lender. Ideally, one who’s comfortable offering mortgages on irregular buildings that can be deemed higher risk.
- Your credit: lenders will look into your past credit when making a decision on whether to offer a mortgage. Because leasehold properties can be riskier and more complex, a solid credit history can be helpful. But, some will still be willing to set up a mortgage even if you have bad credit. So it’s worth downloading all your credit reports ahead of time and then approach suitable lenders.
- Age: just like the remaining time left on the leasehold property can influence lenders, your age can also make a difference in their decision-making. The older you are, the more difficult it can be to secure a top deal with a longer term length. But, with the right lenders, it’s still possible to secure a competitive leasehold mortgage no matter your age.
How a broker can help with a leasehold mortgage
Even though millions of properties across the UK are leaseholds, it can still be tricky to obtain a mortgage. Another challenge is to find a lender willing to offer you a great deal with favourable terms and rates.
Speaking with a specialist broker can be crucial. It means that not only can they source you a competitive leasehold mortgage, but they’ll also be able to advise you on how various properties will be treated by lenders. So you’ll have an expert in your corner during the buying process, and throughout your whole mortgage application.
Just make an enquiry if you want to speak with a skilled advisor who has plenty of direct experience securing mortgages for leasehold properties. We’ll set up a free, no obligation chat with a knowledgeable broker who can help you get your ideal mortgage.
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Buy-to-let (BTL) mortgages for a leasehold property
Flats and apartments are commonly bought as buy-to-let (BTL) investments, so it is definitely possible to get a mortgage. Most of the same limitations and considerations for a residential mortgage will apply, especially around lease lengths. However, you should also expect higher interest rates and possibly lower LTV limits.
Examples of lenders offering mortgages for this type of property
There are plenty of lenders who will consider offering a mortgage on this type of property, but there will be quite a lot of variation in the terms and rates offered. Here are a few examples of major lenders willing to discuss leasehold mortgages:
- Santander – there must be at least 55 years left on the leasehold at the start of the mortgage, and 30 years remaining on the lease at the end of the term.
- Barclays – offer no short lease mortgage option, there must be a minimum of 70 years outstanding on the leasehold property at the start of the mortgage.
- Nationwide – do offer mortgages for leaseholds, but new build flats must have at least 125 years on the lease. And, new build houses must have 250 years left. Requirements for second-hand properties are lower and depend on where the home is located.
The rules and mortgages available can be very different among lenders. So it’s important you find the right one for the leasehold property you’re looking to buy. To see all the available mortgage deals, your best bet is to use a specialist broker who can show all your options.
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Remortgaging a leasehold property
If you want to remortgage your leasehold property, your lender will usually require additional checks from a conveyancer that wouldn’t be needed with freehold ownership. This can make the remortgage process slightly longer and result in some additional costs that you should factor in.
You’ll also have to let the freeholder know about your plans to remortgage. And, they’ll have to agree to your remortgage proposal before a lender will proceed with the application. Most freeholders will charge a notice fee for supplying information and agreeing to a new loan charge on the property.
Refinancing to pay for a lease extension
You might also want to remortgage to extend a lease. This is possible with most lenders. But, there can often be specific requirements imposed around the terms and conditions, including LTV caps. Also, keep in mind that extending the lease on a flat can be more difficult than with a house. So it’s best to get expert advice before going ahead.
The benefits and drawbacks of this type of property
This particular type of property ownership does come with some unique aspects. So it’s worth taking on board some of the advantages and disadvantages when researching whether to pursue a home loan.
- Properties can be cheaper than freeholds.
- Leaseholds can be a useful way to get onto the property ladder without the cost and commitment of owning land.
- Potential access to communal areas or gardens that are maintained and repaired to a decent standard.
- Property value can depreciate as the lease length reduces.
- Leases below 80 years can be more expensive to renew because you have to pay 50% of the ‘marriage value’, and they can be harder to get a mortgage for.
- Conveyancing costs can be higher.
- You have to pay ground rent, which can be re-assessed regularly.
- Higher deposits and lower LTV ratios with some lenders.
- Miss out on any benefit from any increase in the land value.
- Other added costs like service charges, maintenance fees, and a portion of the building insurance.
- There are sometimes restrictions on what you can do to the property, such as adding extensions or fitting a new front door
Speak with a leasehold mortgage expert
When buying a leasehold property, there can be lots of different factors to consider. Because there are a number of specific areas that can impact your mortgage, expert guidance plays a crucial role in making sure you end up with the best deal and terms.
We offer a free, broker-matching service. This means we’ll quickly assess your needs based on the property you’re looking at. And then, pair you up with a specialist broker who has a wealth of experience dealing with leaseholds.
Just call 0808 189 2301 or make an enquiry. We’ll set up a free, no obligation chat with your ideal mortgage broker today.
Speak to an expert in leasehold mortgages
Maximise your chance of approval with a specialist
Yes, this is possible. You do have a legal right to buy, providing you meet certain criteria. You may also need to reach an agreement with the other leaseholders. If a landlord is unwilling to sell, you can explore the Leasehold Reform Act 1967 to reach an agreement, but professional advice and guidance is recommended.
No. A leasehold agreement is essentially a lease agreement for the land the property sits on, while a mortgage is used to buy the property itself. Not all mortgages come with the leasehold included, so it is possible to own a property but not the land it occupies.
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