Short Lease Mortgage

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Short Lease Mortgage
Short Lease Mortgage
Short Lease Mortgage

Short lease mortgage

A lease is defined as an agreement between you and the landlord (known as the freeholder) for a length of time. Most flats are leasehold however houses can also be leasehold in some circumstances. Once the lease has expired, the property will return to the freeholder unless the lease is extended. 

Properties with short leases can be tricky to get mortgages on. Most lenders want to make sure you will have at least 40 years left on the lease by the end of the mortgage term. If you think about it, mortgages tend to be over 25 years long which means you would have to have a lease of at least 65 years on mortgage application. 

You will be pleased to know there are lenders available to lend to you if the mortgage has a short lease. We work with some specialist lenders who will accept a short lease of 40 years on application. 

Table of Contents

When should I extend the lease?

If you have owned the property for 2 years or more, you are able to extend the lease and the freeholder cannot refuse. He/she must agree to this at fair open market rates.

The current leaseholder you are buying from can also extend the lease for you by completion of your purchase if you negotiate this in when purchasing the property.

Extending leases can be expensive and we recommend you get advice from a legal professional. Also click here to read on more about leases.  

Short Lease Mortgage

Bridging loans for short term leases

If the short team lease is unacceptable for a mortgage then you could take a short term bridging loan to acquire the property and then extend the lease. Once the lease is extended you can then either sell the property for a profit or re finance with a mortgage lender who would now accept the property with the lease extension.

How does a bridging loan work?

A bridging loan is a property backed short-term loan, usually funded to bridge the gap. Reasons why you might use a bridging loan is when you’re at an auction and you need to purchase a property in auction and you need speed, or it might be that you’re waiting for another event to occur i.e you’re moving from your home to another home and you don’t want to be in a chain, or you might have found an under-valued property and you don’t have a deposit to hand so you want 100% finance. That is all available through a bridging loan.  

Is it worth buying a property with a short lease?

Are you considering purchasing a property with a short lease? It’s a decision that requires careful consideration, as it can have significant implications for your long-term investment. In this article, we’ll explore the pros and cons of buying a property with a short lease and provide advice when purchase a property with a short lease. 

Pros of Buying a Property with a Short Lease:

  • Lower Initial Cost: Properties with short leases often come with a lower upfront cost compared to those with longer leases. This can be an attractive option for buyers looking to enter the property market with a limited budget.
  • Potential for Negotiation: Short lease properties may offer room for negotiation, allowing you to secure a better deal on the purchase price. Sellers may be more willing to lower their asking price or cover certain expenses.
  • Opportunity for Lease Extension: In some cases, you may have the option to extend the lease, either through negotiation with the freeholder or by exercising statutory rights. This can provide long-term stability for your investment.

Cons of Buying a Property with a Short Lease:

  • Reduced Marketability: Properties with short leases are typically less attractive to potential buyers. This can make it difficult to sell the property in the future, potentially resulting in a lower sale value.
  • Limited Financing Options: Securing a mortgage for a property with a short lease can be difficult, as many lenders have stricter criteria for such properties. This can limit your financing options.
  • Uncertainty and Risk: Short leases introduce uncertainty, as you may not know whether the lease will be extended or how much it will cost. In some circumstances it can be difficult to locate the freeholder and get a response. 

How does short-lease lending work?

The lender will engage a surveyor to assess the property, considering both its current short lease and a prospective new long lease. Conditional upon the release of funds, the solicitor will promptly execute the new long lease. The mortgage offer will be generated on the valuation of the property with the long lease. 

Buy to let mortgage short lease

Short lease properties can make great investments especially if you are looking to add value by extending the lease and even doing a refurbishment to the property. This is a great strategy that is often used by our investor clients.

Buy to let lenders will take on a property with a short lease as long as it has a minimum of 41 years left on completion.

If the lease remaining is below 41 years, then you will need to either purchase the property cash or purchase the property with the help of a bridging loan. You can find more information about bridging loans by clicking here.

How can we help?

Over the years we have helped many individuals and families secure a mortgage property with a short lease. Our advisors assess your circumstances and then advise and recommend according to your needs.

You can find our more about leases on property by clicking here.

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