Leasehold risk for over 55s

More than half of older homeowners who own one of the 2.3 million leasehold properties in England and Wales would consider buying the freehold or extending the lease suggests new research* from independent equity release adviser Key.

Homes owned on a leasehold basis account for around one in four sales a year and once a property has less than 80 years left on the lease, it becomes more expensive to extend the lease and in certain circumstances buyers can find it difficult to get finance to purchase the property.  Key’s study found more than two in five (41%) of over-55s with leasehold properties have terms of less than 80 years to run and nearly one in five (18%) have less than 50 years left on their lease.

The Competition and Markets Authority** is investigating potential mis-selling in the leasing household market amid worries that owners struggle to sell and are confused about their rights.

Leasehold worries:

Key’s research found 27% of over-55s admit to feeling uneasy or disappointed when they first realised the home they were buying was leasehold.  Nearly three out of four (74%) say if they were buying again it would be critical the next property was freehold.

The research shows leaseholders would like to take action – around 55% of older homeowners with leasehold properties are looking to extend the lease or buy the freehold. Typically, extending a lease or purchasing a freehold can cost thousands of pounds, the longer it is left the more expensive it becomes and mortgage lenders can be reluctant to lend on a property with fewer than 70 years left on the lease.  Over-55s are aware of these challenges with 15% saying they cannot afford to buy the leasehold, 14% believing they can’t afford to extend the lease and 12% said the process is too daunting.

Leasehold impact on remortgaging and equity release:

Those over-55 who wish to access the value of their property via equity release, a retirement interest only mortgage or another later life lending products may struggle if they have less than 80 years left on their lease. However, equity release lenders are prepared to lend if part or all of the sum released is used to extend the lease.

Will Hale, CEO at Key said: “The vast majority of people don’t fully consider the implications of buying one of the UK’s 2.3 million leasehold properties, but the longer they live in it, the more likely they are to need to consider extending lease or buying the freehold. This can be a costly and time consuming process – especially if you are on a fixed retirement income or working hard to build up your pension savings.

“Equity release and other later life lending products can offer a solution for older people who are facing watching the value of their home gradually decrease as the number of years on their lease falls. We have seen an increase in people using their housing equity to fund the purchase of a freehold or to extend their lease as well as to help meet other needs or wants in retirement.

“Good expert advice is key to ensuring that older homeowners receive the most benefit from their property wealth and use it in the most appropriate way for them and their families. Anyone considering buying a freehold or extending their lease should get legal advice or use the Government-funded free independent Leasehold Advisory Service.”

The Leasehold Advisory Service website at https://www.lease-advice.org/ offers a range of information and access to free phone advice.

• * Independent research conducted among 1,012 homeowners aged 55-plus including 291 leaseholders by Opinion Matters between July 30^th and August 5^th, 2019
• ** https://www.gov.uk/cma-cases/leasehold

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