People who hold a leasehold have been warned over the downsides and drawbacks to their mortgage. Marc von Grundherr, director of Benham and Reeves, has warned leasehold owners over hidden costs which could hit – despite it “being cheaper up front”.
“Ground rents can be a particular deterrent and while they have been largely banned for most new long residential leasehold homes, they still apply to a large number of existing leasehold properties,” Mr von Grundherr said. “There’s also the additional costs of management and service charges to consider.”
Myron Jobson, senior personal finance analyst at Interactive Investor, Jobson said: “Leasehold flats are generally cheaper than freehold equivalents in similar location – which can be a significant draw for first-time buyers or those working within a tighter budget.” von Grundherr added: “Leasehold properties come with a range of other benefits such as modern living, shared amenities and prime city centre locations.”
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The Department for Levelling Up, Housing and Communities (DLUHC) estimates there are around 4.98 million leasehold homes in England, of which 70% are flats and 30% are houses.
But he also warned that these fees can suddenly increase, adding: “One of the main sticking points when it comes to leaseholds is the recurring costs – such as ground rent and maintenance fees – on top of the mortgage.” Jobson went on: “These fees can increase over time and sometimes unexpectedly, potentially creating a financial headache.
“The prospect of paying service charge and ground rent can also make the property less financially attractive in the long run.” David Hollingworth, director at L&C Mortgages, said: “TYhe specifics of the leasehold terms could have a bearing on which lenders will be able to lend.
“The unexpired term of the lease is one element to look out for, as lenders will have a minimum expectation for the number of years still on them which can vary. But, if the remaining lease is short – under 85 years – it will make it harder to find a lender happy to lend without it being extended.”
“If either of the ground rent or maintenance charges are deemed too high or the terms are such that it could rapidly escalate and put buyers off, it could affect the lender’s decision,” he said.