Over recent weeks you cannot have escaped stories in the press predicting doom and gloom for the property market. There is no doubt that over recent months there has been a tailing off in the level of activity in the property market generally. However, it is not all bad news.
With property prices stabilising and settling at a less inflated level than we have seen in recent years, now is a good time to consolidate, to make those improvements to your home which will make them more valuable and more marketable when the market does pick up. This is particularly true for leasehold properties.
Property is arguably the most solid form of long term investment. However, if you own a leasehold property you own a diminishing asset. A lease is granted for a term of years and as that term inevitably decreases, the value of the lease drops. In order to reinstate that value it is necessary to extend the lease.
Owners of leasehold flats have the right to extend their lease by 90 years in addition to the original term at a peppercorn ground rent. In order to exercise this right you must have owned your property for at least two years. The same legislation also gave leaseholders a collective right, along with their fellow leaseholders, to buy the freehold of their building.
The valuation issues involved in the extension of leases and purchase of the freehold interest are similar. If you live in a building where at least 50% of the leaseholders wish to do so, there is some advantage in joining together to buy the freehold rather than dealing with your lease extension individually; not least because you will benefit from some costs savings as the costs incurred in purchasing the freehold can be divided between you all rather than be borne by each of you individually. This also has the benefit that your leasehold flat becomes a “share of freehold flat”- something which arguably adds value to the property and is certainly more appealing to prospective purchasers, particularly in a difficult market.
You will have to pay a premium to the landlord and you will incur legal and valuation costs. Under the terms of the legislation you will be responsible not only for your own, but also the landlords legal and valuation costs. But it is worth it. If you own a leasehold property you are unlikely to be able to avoid extending your lease; as the term diminishes it becomes more expensive to extend. As it becomes more expensive to extend so the value of your property becomes compromised and the marketability of the flat is affected. The longer you put off the problem, the more expensive it will be to fix.
Taking advantage of stabilising house prices means that you are likely to be able to extend your lease or buy your freehold today for significantly less than you may have done a year or so ago as the price is based on the value of your property at the time the notice is served.
You may not be able to escape the credit crunch but you can make the most of it.