As a property owner in the UK, you may be facing issues with a short lease on your property. A short lease on a property may reduce the probability of securing a traditional mortgage and limit your options when it comes to financing your home. However, there are some solutions available to help you overcome this issue and secure the funding you need. In this helpful guide on “Short Lease Mortgages”, we will explore the different options available for short lease mortgages in the UK and help you understand what you need to know to secure a mortgage with a short lease. We will answer the most frequently asked questions such as what is a short lease, can I get a mortgage on short lease property, how much mortgage can I borrow with leasehold properties etc.
Mortgage on Short Lease
Buying a home might involve your purchase of a freehold property or a leasehold property. Council of Mortgage Lenders (CML) advises most houses – whether detached, semi-detached or terraced – are freehold; most flats are leasehold. When you buy the freehold, you buy the building and the land on which it sits; when you buy a lease, you buy the right to occupy the property for the remaining Term of the contract.
At the beginning of a term that has 999 years to run, the distinction in tenureThe type of ownership or occupation of a property, such as f... makes little practical difference. As the years run out on the length of the remaining Lease, however, the limitations and restrictions of leasehold property become more apparent.
As that remaining period shortens, the value of a leasehold property also falls, and any subsequent buyer is likely to be looking for specialist short-lease mortgage providers to secure any advance for the purchase of such property.
What is a Short-Term Lease?
The length of a typical lease term is 99 years. Some have had an initial lease term of 125 years and more recent leases, in particular, may have a term as long as 999 years.
A short contract may be defined as one nearing the end of its Term – although it should also be noted that, since 1993, any leaseholder has the statutory right to extend a contract and the freeholder may not legally refuse that request to extend. Before 1993, once a lease expired, the property returned to the freeholder and the former leasehold had nothing at all.
Mortgage lenders have developed their own definition of a short lease – and this currently stands at one that has less than between 70 and 80 years still to run until its full Term. That is an interval which ensures that a reasonably long mortgage – one for as long as 30 years, for example – can reach its full Term when there are still 40 to 50 years of the existing contract still to run, and the leasehold property, therefore, retains some value.
If the property you want to buy has a term of less than 70 to 80 years still to run, therefore, you will be looking to short-lease mortgage providers.
Can I get a mortgage on a short-leasehold property?
If you want to buy a property with a shorter mortgage term contract of only 70 to 80 years, you have two options:
- negotiate an extension of the current Lease – which may be a significant cost (since one of the appeals in buying a short lease property is the considerable drop in price the shorter the Lease becomes); or
- seek a mortgage provider.
If you persist in the purchase of a property with a short contract term, your pool of potential mortgage lenders is more restricted – not all lenders will be interested in entertaining your application.
Getting specialist expert advice from a broker such as ourselves at Needing Advice Ltd can help you access what we consider are the most cost-effective and appropriate solutions for you.
How much can I borrow for mortgages for leasehold properties with short leases?
As mentioned above, as the length of any term shortens, the cheaper property is likely to cost. This declining value in the leasehold property is also reflected in the amount that any lender is prepared to advance.
The relative insecurity of leasehold tenure compared to freehold means that lenders typically offer lower loan-to-value (LTV) ratios – while you might be offered a 90% mortgage on freehold property, for example, the very maximum offered on a leasehold property might by just 80%.
If the property you want to buy has a term of fewer than 80 years still to run, it becomes increasingly difficult to find a willing lender – since the contract becomes more and more expensive to extend – and the restrictions on the maximum loan and LTV are likely to be still more severe.
If you are interested in supply teacherA teacher who is hired on a temporary basis to cover for an ... mortgages, you can read our Our Guide to Supply Teacher Mortgages.
How Short Lease Mortgages Work
Short lease mortgages work in a similar way to traditional mortgages, but with a few key differences. One of the main differences is that you will typically be required to put down a larger deposit, as the lender will want to minimise their risk. Additionally, the interest rate on a short lease mortgage will typically be higher than a traditional mortgage.
When you apply for a mortgage on a short-lease property, the lender will assess your financial situation, affordability assessment and the value of your property to determine how much money you can borrow. They will also consider the length of your remaining lease and the amount of time left on it. The mortgage lender will then offer you a mortgage with terms that reflect their assessment of your financial situation and the risk associated with your property. If you are interested in getting a mortgage on a shorter lease, you can always contact a specialist mortgage provider to help you in securing the best mortgage deal.
What are the different types of Short Lease Mortgages in the UK
There are various types of short lease mortgages available in the UK, including:
Leasehold Extension Mortgages:
These are designed for homeowners who are looking to extend their lease. They work by allowing you to borrow money to pay for the cost of extending your lease, which will increase the value of your property and make it easier to secure a traditional mortgage in the future.
If you are interested, you can also get a Lifetime mortgage on leasehold property.
Shared Ownership Mortgages:
These are designed for property owners who are interested in purchasing a portion of their property. They work by allowing you to purchase a share of your property while still paying rent on the remainder of the property. This can be a good option if you cannot afford to buy your property outright.
These are designed for homeowners who are over the age of 55. They work by allowing you to borrow money against the value of your property, with the loan being repaid when you die or sell your property. You can read about retirement interest-only mortgages on our other blog.
What else do I need to consider with short-lease properties?
If you go ahead with your purchase of a short-lease property, bear in mind the practical inevitability of the following:
- The need to extend the term contract – which may prove expensive and involve costly legal fees;
- possible increases in ground rent – which might appear affordable at the outset but are subject to increase as and when the freeholder decides;
- the benefits of any increases in land values accrue to the freeholder only – you are likely to be faced with the ensuing increase in ground rent;
- when it comes to selling your property, there are likely to be fewer interested buyers finding it increasingly difficult to find short lease mortgage providers.
Short lease mortgage lenders
Which lender is best will depend on your unique circumstances. It will also depend on whether the property is an apartment, flat or house—other factors such as whether the property is a Buy to Let Mortgage or a Residential Mortgage.
See below a short list of lenders we have used before for short lease mortgages.
We have worked with lenders such as Barclays, Aldermore, Natwest, Clydesdale, The Mortgage Works, Nationwide, and Halifax. If the lease is extended on or before completionThe point at which a property purchase is finalized and owne..., then we have other options too.
Next steps – Leasehold Mortgages
Buying a leasehold property may be more complicated than purchasing freehold, especially if you are looking for short-term mortgage providers. But the latter do exist!
If you are likely to be looking for such a lender, please contact us here at Needing Advice to discover how we can help. We have relationships with mortgage lenders who are willing to lend on short term properties, so we can find you a suitable deal that you may not be able to access on the high street.
FAQs- Mortgage for Short Leases
What does “Lease” mean?
It is defined as “a contract between two parties whereby one party agrees to give possession of something to another”. In this case, the person giving up ownership rights over their home will become the tenant. The landlord owns the house outright and rents out part of their property to someone else. This type of agreement usually lasts from 1 year to 99 years. To know more about such mortgage products you can contact a experienced independent short lease mortgage broker.
Can I get a Short Term ‘Lease’ mortgage even though I am buying an investment property?
Yes, although most people would agree that investing in real estate should always be done to make money rather than simply trying to make a quick buck. There are also some other formalities that you need to consider before applying for a mortgage in the short Term. It is better to contact for Financial Advice from a market broker.
What kind of conditions do mortgage finance companies insist on when lending on a contract extension?
When mortgage companies lend money against properties where the owner holds a current lease over an extended period, they usually require two things: firstly, that the tenant pays the rent into their bank account at regular intervals during the tenancy, and secondly, that the landlord agrees to provide them with evidence that they intend to continue letting out the premises for the same purpose throughout the remainder of the original Term.
Why do mortgage lenders check the length of a “Lease”?
The reason mortgage companies want to know how long the Term is for is to assess whether there is any risk associated with lending money against the property. If the Lease expires in less than five years, most lenders won’t consider extending their loan. If the Lease runs out within 10-15 years, some lenders may still extend their loans. However, these mortgages tend to come with higher interest rates.
What type of property would qualify for a Short Term Lease mortgage?
If the property you want to buy has a lease term of less than 70 to 80 years still to run, therefore, you will be looking to the short term contract mortgage provider.
How long should my Lease last before applying for a short-term mortgage?
Most mainstream lenders may not accept your mortgage application if your contract is less than 70 years. Although, there are some other important factors that you may need to consider for lease valuation. For more details, you can contact NeedingAdvice.co.uk Ltd for expert advice.
Should I extend my Lease?
It depends on your requirement and to be sure of not accepting the estate agents promise of easy extensions of contracts without consulting a financial advisor.
How to get a mortgage on a Leasehold Property
The first step in getting a mortgage on a leaseholder home is finding one that suits your needs. You may be able to buy a new build or even renovate an existing house into a leasehold property. The main thing to consider here is whether it’s possible to convert the building back into a freehold once the Term expires. If not, you could end up paying rent forever! Once you know what type of property you want, you should start looking at mortgages.
What is a Statutory Lease Extension Process?
A statutory lease extension provides leaseholders with the ability to increase the current Lease upto 90 years. For example, a current lease of 75 years could be extended to 165 years.
What are some major points while considering a mortgage for a Short-Term Lease?
Some of the main points to consider for mortgage products are Service Charges, Ground rent, contract period, terms & conditions on renewing and extending.
What does leasehold mean when buying a house?
Properties with leases mean selling the ownership rights to someone else while retaining the legal responsibility for paying off any outstanding debts or mortgages. This arrangement works well for those wanting to buy a home but not necessarily own one outright. The person leasing the property has full control over all aspects of running the business whilst still having access to capital from the bank should they require it.
What is a Short Term Mortgage Finance?
A short term mortgage is a loan for up to 3 years that allows borrowers to pay off their existing debt over this time. The interest rate on these loans is usually higher than standard mortgages, but they allow more flexibility in terms of how much money can be borrowed.
The main benefit of using a short-term loan is that it gives you access to funds quickly without having to wait months or even years before your application will be approved. This means that if you need cash urgently, then a short-term loan.
Why won’t mortgage lenders offer funding for short-lease properties?
Short-lease properties have historically been difficult to finance because of the uncertainty around the length of the lease. On the other hand, new-build houses are more favoured by the banks. However, as the market becomes increasingly aware of the benefits of short-lease products, mortgage lenders are starting to look more favourably upon them. Also, the affordability criteria and mortgage period differ from lender to lender.