arrowright roundtick plus plus house 66 . 7 % cornercurve

Leasehold mortgages

Looking for information about leasehold mortgages? Get the right advice on them here.

Get Started

No impact to credit score

Feefo logo

By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 25th June 2019* | Published: 11th June 2019

Lots of customers approach us enquiring about a mortgage on a leasehold property. Lease mortgages are common in the UK, but what exactly does the term mean, and how do leasehold mortgages work?

If you’re considering getting a mortgage of lease property make sure to read this first, as they are more complex than standard repayment plans and could end up costing you more.

In this article, we’ll be answering questions like “can I get a mortgage on a leasehold house or flat?”, “what problems are associated with leasehold mortgages?” and “what is the minimum lease for a mortgage?”

We’ll also be covering:

We’ll find the perfect mortgage broker for you - for free

Save time and money with an expert mortgage broker who specialises in cases like yours

  • We've helped over 82,000 get the right advice
  • Our form only takes a minute, then let us do the hard work
  • Save up to £400 per year with the right advice (source: FCA)
  • All the brokers we work with have whole of market access

What is a leasehold mortgage?

When you buy a property, it will either be on a leasehold or freehold basis. Freehold means that you fully own the property as well as the ground it's built on. With a leasehold property however, you only “own” the property itself for a certain number of years and the freeholder owns the land it sits on.

With a leasehold mortgage, you will have a lease from the freeholder to use the home for a certain amount of time. Leases can be very long - up to 999 years - but usually range from 90-120 years. However, leases can often be short, around 40 years, and you’ll rent the ground from the freeholder.

How does getting a mortgage on a leasehold property work?

The process of getting a loan for a leasehold property is very similar to that of a standard mortgage in that lenders will have specific eligibility criteria and carry out assessments and checks to ensure they are happy you can afford the repayments, etc.

However, the length of the lease is a key factor which can make or break a lender’s decision; generally, the shorter the lease, the harder it is to get a mortgage.

Can I get a mortgage on a short leasehold property?

In one word yes, it is possible to get a mortgage on a leasehold house or flat. But be wary of a “too good to be true” price tag - the chances are, it could well be! The shorter the lease, the lower the asking price is likely to be as values fall considerably as the lease decreases. This will be reflected in the value given by the surveyor.

So if you’re looking to buy a leasehold, your first priority should be to check how long you’ve got left on the lease. Many mortgage providers will not lend on homes which have a lease of 70 years or under. Getting a mortgage on a short leasehold property, say 60 years or below, is possible but you can expect to pay higher interest rates and require more deposit.

Typically, mortgage providers want the lease to extend for a minimum of 40 years after the end of your mortgage term, so that the value of the property won’t be affected.

Length of lease versus value of the property

Extending a short lease mortgage can add thousands to your property's marketing value - but at a price. The below table* illustrates the typical cost to extend a lease on a £200,000 property by 90 years:

Current lease length Extension cost Professional fees Total Potential added value
99 years £5,000 £2,500 £7,500 £5,000
85 years £6,000 £2,500 £8,500 £10,000
79 years £8,500 £2,500 £10,500 £16,000
70 years £14,000 £2,500 £16,500 £26,000
60 years £24,000 £2,500 £26,500

£38,000

*The above example is for demonstrative purposes only and you should consult your broker or lender for the most up-to-date information and rates.

As you can see, if you’ve got over 90 years remaining on your lease the added value equates to only slightly more than your costs for an extension. On the other hand, look at how the extension costs soar once you reach the 79 year mark.

This is because if you let your lease drop to 80 years or less you will have to pay 50% of the property’s “marriage value” (the amount of added value a lease extension would add to the property) as well as the usual lease extension price.

To speak to an advisor specialising in leasehold mortgages, contact us and we’ll put you in touch with an expert.

When can I get a mortgage lease extension?

Under the 1993 Leasehold Reform Act, most homeowners are legally entitled to get 90 years added to their lease at a fair market price. However, you need to have owned (but not necessarily have lived in) the property for at least two years.

Those two years could make all the difference. Say, for example, you buy a property which has 81 years’ lease remaining. Once you’ve owned the property for two years, you’ll be below that crucial 80-year cutoff, and will have to fork out thousands for an extension.

There's no urgency for those with 90 years or more left, but everyone, whether a new or existing owner, should start thinking about extending when the lease approaches around the 83 year mark, even if you have a “mortgage for life” lease.

Can I get a leasehold mortgage on a flat?

Yes. In the UK, many people have leasehold mortgages, and is very common for flats and maisonettes. In fact, in London and other major cities the majority of flats are leasehold.

Potential Leasehold mortgage problems

As well the risk of racking up extensive lease extension costs, there are a few other points you should be aware of before buying leasehold:

Rent is re-assessed on an ongoing basis

While the cost of land rent may be affordable at the time of purchase, it is re-assessed regularly to reflect the property’s market value. If the area soars in value, you could be tied into paying an unaffordable sum on ground rent.

No benefits from increase in land value

As you don’t own the land when you sign a leasehold agreement, you will not benefit if the value goes up. Instead the freeholder will benefit, and you may end up paying increased rent as a result of the increase in land value.

Fewer willing lenders

It can be more difficult to secure finance for a leasehold property due to the associated risk and complications. Fewer willing lenders can result in less competitive interest rates, and may have to put down a higher deposit than you would if buying freehold.

More difficult to sell

Although not always true of flats, most of which are purchased leasehold, you may experience more difficulty when it comes to selling a leasehold house, especially if there's only a short lease remaining. Again, this is due to lack of demand for such properties due to the associated risks.

That being said, buying leasehold can be a great option for some people - it all depends on the circumstances.

We work with advisors specialising in leasehold properties, so contact us and we’ll refer you to an expert who can guide you through the process and make you fully aware of any potential pitfalls before you commit.

Leasehold mortgage requirements and criteria

As with every type of mortgage, there are certain criteria you will have to meet. As such, every lender has different views on what they will or won’t accept when it comes to leasehold property mortgage requirements. Length of lease will of course play a big role, but there are other factors to consider.

Leasehold mortgage LTV

You are very likely to see a difference in leasehold mortgage Loan to Value (LTV) requirements. LTV is the ratio of how much you borrow against the cost of the property. For standard residential properties, some lenders are happy with 95% LTV (5% deposit), others 90%, and many accept 85% and under.

However, lenders often have stricter LTV requirements for leasehold properties, so expect to put down a deposit of at least 15-20% if you want access to the most competitive deals.

Affordability

Lenders will assess your affordability before authorising a mortgage to ensure that you will be able to keep up with your repayments.

Other influencing factors

There are also a number of other factors which can impact general mortgage eligibility, including (but not limited to) your credit history, age, and whether your property is a non-standard construction.

Get in touch and we can calculate the most competitive rates on a leasehold home mortgage to suit your individual needs.

Additional costs associated with lease purchase mortgages

If you’re getting a mortgage for a leasehold, expect higher conveyancing fees due to the additional legal work involved.

You’ll also have to pay the freeholder ground rent and, depending on the property, service charges. This is standard for properties which share communal facilities (such as apartment blocks), as these fees go towards maintenance costs, repair work, insurance, as well as the employment of staff and property management of the building as a whole.

All these costs will all be factored into your affordability assessment, so ensure to budget for this as it could impact how much you are able to borrow.

Leasehold mortgage FAQ

Here you’ll find the answers to some of the most-asked questions we receive about leasehold mortgages...

What is the difference between a freehold and leasehold mortgage?

With a freehold mortgage, you own the property outright. With a leasehold property, you only “own” that property for the number of years stipulated in the lease (and not the land it was built on) - although this can be extended.

Can I switch from a leasehold to freehold mortgage?

Yes, leaseholders have a legal right to buy the freehold of their home provided they meet certain criteria. Alternatively, you may be able to negotiate with your freeholder informally to buy the freehold by agreement.

If the freeholder is unwilling to sell, you may be able to enforce an agreement under the  under the Leasehold Reform Act 1967. The Act sets out a procedure and timescales to be followed to acquire the freehold, and the Tribunal can determine the price and terms of acquisition.

However, this can be a tricky process, and it is recommended that you approach a solicitor and surveyor for professional assistance.

What are the leasehold mortgage interest rates like?

Leasehold mortgage rates differ depending on the length of the lease, as well as the amount of deposit you have, your income and affordability, age, credit history, plus other individual circumstances. Lenders will then calculate what interest they will offer you based on these factors collectively.

Can I get a Buy to Let leasehold mortgage?

There’s no reason why you shouldn’t get a leasehold mortgage on a BTL, but again it’s important to consider the length of the lease. Expect even less competitive interest rates if you opt for a BTL with a lease at the shorter end of the scale.

Buy to lets typically have lower loan to value (LTV) requirements, so on a leasehold basis you may be required to put down an even larger deposit.

Can I get a leasehold mortgage for business / commercial purposes?

Yes, it is quite common to get a leasehold mortgage on commercial premises, especially if you’re starting a new business. This is because less capital is required up front, giving you more money to invest in your business.

Leasing also offers offer greater flexibility if you decide you need to move to a different premises in line with the changing needs of your business. It’s up to you to calculate what the most financially beneficial option is when it comes to leasehold versus freehold.

What leasehold mortgage lenders are there?

Most banks and providers are willing to offer mortgages on leasehold properties. However, the length of the lease and your individual circumstances will determine who is willing to lend to you and how competitive interest rates are.

What short-lease mortgages providers are there?

There are a number of shorter term mortgage providers available, including high street banks Santander, Barclays, Halifax, HSBC, Nationwide, Virgin and Natwest. However, the shorter your lease, the less competitive you can expect interest rates to be.

What is the minimum lease for a mortgage?

Every single lender will have a minimum lease length they’re willing to lend to on a mortgage. It is difficult to get a mortgage on a property with a lease of 60 years or below.

Why you should speak to a whole of market mortgage broker

We’ve helped over 82,000 people find the right mortgage, even those who may have been declined a mortgage or had bad credit history.

In fact, our customers consistently rate us 5 stars on Feefo, mainly due to our high levels of service, but also because we offer offers a 5-star service with access to expert brokers who are:

  • Whole of market.
  • Have a working relationship with all freehold and leasehold lenders, not just a select few.
  • Already know the lenders to go to for freehold and leasehold mortgages they successfully arrange these already.
  • OMA Accredited advisors.
  • Have completed a 12 module LIBF accredited training course.

Talk to a flat and leasehold mortgage loan expert today

If you like what you’re reading or require more information, call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Updated: 25th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.