You can get equity release on leasehold properties. However, the lender will take extra considerations into account, including your lease length, ground rent, service charge and any sell-on clauses.
In this guide, you will learn:
In the UK, property ownership can be freehold or leasehold. Regardless of ownership type, you fully own your home. However, there is a distinct difference between the two.
With freehold homes, you also own the ground the property is built. Whereas with leasehold homes, you do not own the land on which the property is built.
Why are some properties leasehold and others freehold?
The main reason that a lease would be set up is to cover any shared areas in the building or the grounds where it is built.
An excellent example to consider is flats; Who owns the roof? Who should pay for a repair to the roof if it should leak?
In most cases, there will be a joint obligation, either directly written into the lease or indirectly through service charges.
So it is unsurprising that nearly all flats will be sold as leasehold properties, with the builder, or a management company they have sold it to, owning the freehold.
Because your leasehold is a form of tenancy, you will likely pay ground rent along with an annual service charge. These charges cover the external maintenance of the property, grounds and internal public areas.
Some flats – especially in houses converted into apartments – are sold with all properties in the building sharing the freehold. This is known as 'share of freehold'. The freeholders are then responsible for setting up a management company, to which all property owners will pay a service charge, to manage the shared maintenance costs.
Whole houses are typically freehold as generally there is no reason for a standalone house to be leasehold. However, there is an increasing trend of leasehold houses. These are particularly popular with new build homes, so it is always something to check with your solicitor before you purchase your property.
How do I know if my property is leasehold or freehold?
Your title deeds will confirm if you own the freehold or leasehold for your property. If you are unsure, and your property is registered with the land registry, we will be happy to provide you with a copy of your title deeds free of charge.
Please note all properties will have a freeholder. But only leasehold properties will have leases.
When the lease of a property is set up, it is common to see a 99, 125 or even 999-year lease. The lease length will be shown on your title deeds, as referred to above.
Remember, flats will typically be leasehold, so it's worth checking the lease length when you purchase your property.
If you purchased your flat from new, you would have the full length of the lease. If however, you bought your apartment from a previous owner, the lease length left will be minus the number of years since the lease was set up.
When considering equity release for a leasehold flat, the lenders will have a minimum requirement for the number of years remaining on the lease. This figure will differ from lender to lender, with some lenders requiring a minimum of 75 and others requiring a minimum of 90 or 125 years remaining.
If your lease length is at the lower end of the lender requirement and you are looking to take equity release, you may wish to look into extending your lease in order to ensure you have the maximum lending options available to you.
Of course, there is a cost of extending your lease, and these can vary greatly. The expenses that you will need to consider are as follows:
Freeholder (Lease Extension Cost) – This will be the fee that your freeholder charges for extending your lease. It will depend on the value of your property and the lease extension required. To get an idea of the lease extension fee you may be charged see www.lease-advice.org/calculator. The final price will be negotiated and agreed between you and your freeholder.
Legal fees - You will require a solicitor to represent you for your lease extension.
Valuation fees - A surveyor will need to visit your home to carry out a valuation which will help the freeholder calculate the cost of the lease extension. These typically cost about £400 to £900, depending on the value of your flat. Quite commonly, you will have to pay for the valuation upfront, and it will likely be non-refundable.
Should your lease fall below 80 years, then you will also need to be aware that a 'marriage value' is added to the price of the lease extension. For full information, see www.lease-advice.org/advice-guide/lease-extension-valuation/.
Having established the costs required for your lease extension, you should be in a position to decide if you wish to go ahead before taking your equity release. From our experience, the timescale for a lease extension is, on average, around six months.
If you find you don't have the funds available to have the lease extension before taking equity release, then there is another option available to you.
Your lease extension may be carried out simultaneously with your equity release application and some of the equity release funds used to cover the costs of your lease extension.
If you choose this option, then the equity release lender will also wish to review and approve the lease extension. And your equity release application will only complete once the lease extension is also ready.
As applies with the number of years required on the lease, lenders will also have guidelines on the types of leasehold flats that they will be happy to lend on. We have a wide range of lenders we work with, so there should be options available for you in most circumstances.
Types of leasehold flats may include:
Purpose-built block of flats. Many types of flats are suitable for equity release. If the block is over four storeys, the lender will often require that it has a lift. The lender may also ask to see a copy of the lease agreement to ensure that it fulfils their lending criteria.
Ex-Council Flats. There are restricted lenders available for these types of flats. The lender will also run their own checks to establish how many properties in the block are currently privately owned or still, council-owned.
Retirement Flats. This can be a slightly more complicated lending enquiry due to the varying restrictions and charges involved in retirement flats. However, there are lenders available who will be able to consider lending on age-restricted properties.
Aside from the type of flat that you own, as discussed above, and your lease length, we will also require additional information on the charges you pay:
Service Charge - This charge covers typically, the cost of services such as general maintenance and repairs, buildings insurance. If provided, central heating, lifts, porters, and lighting and cleaning shared areas are also chargeable. The charges may also include the costs of management services provided by the landlord or by a professional managing agent, as well as contributions to a reserve fund.
Buildings Insurance – An equity release lender will require a copy of your buildings insurance during the equity release application process. As your management company covers buildings insurance within your service charge, you may need to contact them directly for a copy of your buildings insurance document.
Ground Rent - Ground rent is a payment you make to your landlord as a condition of the lease, for rental of the ground your property is built on. As with any rent, if you must pay ground rent, this will be stated in your lease along with when payments should be made.
Sell on Fees - Companies that own or manage leasehold retirement properties, usually flats, often include a clause in their lease agreements. They require the leaseholder to pay an "exit" or "transfer" fee when they or their beneficiaries wish to sell or rent out the property. It is not uncommon for this fee to take the form of a percentage of the property's market value at the time of selling. On signing the lease agreement, the leaseholder agrees to this provision, and it becomes a binding clause in their contract (lease agreement).
While leasehold is a common form of tenure for flats, it is now increasingly applied to new build houses as well.
If you have a house that is leasehold, it is perfectly acceptable for equity release lending. There will however be a ground rent charge you will pay to the freeholder. An equity release lender will require sight of your lease agreement to review, to establish if the ground rent charges meet with their criteria.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.