All homeowners want their property to increase in value.
However, leaseholds run down over time.
This makes some flat-owners worry.
But should they be worrying? And if not, why?
Leasehold flats
Most types of flat are leasehold. This means the owner has the right to live there for a certain period, typically 99 or 125 years.
If the leasehold expires, the flat would then belong to the freeholder.
The freeholder has legal rights over the property. They charge leaseholders an annual ground rent and are responsible for building maintenance.
In some cases, leasehold flats are part of more extensive developments, including:
- Communal gardens
- Carparks
- Lifts
- Hallways.
When leaseholders sell their flat, the leasehold carries over to the new buyer.
Leaseholds and blocks of flats
Leasehold flats are often found in blocks of flats or smaller buildings.
They may be prevalent in areas with a shortage of freehold properties. Or where the cost of freehold properties is high.
Do leasehold flats increase in value?
In short, yes. Leasehold flats can increase in value over time, like any other property.
However, the rate of increase may be lower than for freehold properties. Various factors might impact a leasehold flat’s value, including:
1. The length of the lease
As the lease nears its expiry date, the value of the property may decrease.
Potential buyers may be deterred by the prospect of negotiating a lease extension. Or the prospect of losing the property altogether due to it expiring.
2. Ground rent
The level of ground rent that the freeholder charges can affect the value of a leasehold flat.
If its relatively high for the area, many buyers may be put off.
3. Lease terms
The lease terms may also impact a leasehold flat’s value. These set out the rights and obligations of leaseholders and freeholders, including details of:
- Ground rent
- Service charges
- Any restrictions or covenants on the property.
Before buying a leasehold flat, it’s crucial for tenants seek legal advice and check that the lease terms.
This will avoid onerous clauses that might impact the property’s value later on. You will need to have the correct leasehold documents ready before selling.
4. Location
Where the leasehold property is located is essential in determining its value.
Properties in desirable areas are likely to be more attractive to potential buyers. So, they may increase in value over time.
How much value will my leasehold flat increase by?
The amount a leasehold flat value increases over time depends on several factors.
1. The flat’s location
The rate of increase for a leasehold’s value is slower than freehold properties of similar size and location.
Potential buyers may be deterred by the ongoing costs associated with leasehold ownership.
2. The flat’s condition
There are some steps leaseholders can take to increase the value of their property.
One of these is, as with properties more generally, is the condition of the flat. Renovating or redecoration helps, as do does simple staging.
3. The length of the lease
Negotiating a lease extension with the freeholder can increase the lease length. This makes the property more attractive to potential buyers.
And ensuring lease terms are favourable, with reasonable service charges or restrictions, helps.
Converting leasehold into freehold
One way to avoid losing value in a leasehold flat is to convert it to freehold.
This can be expensive and take time. There are several paths towards doing it. These include buying it with neighbouring property owners.
