What Makes Leasehold Remortgages Different?
When you own a leasehold property, you own the right to occupy it for a set number of years as specified in the lease. You do not own the building or the land it sits on, which belongs to the freeholder. This distinction matters to mortgage lenders because the value of a leasehold property can diminish as the lease gets shorter.
Lenders will look carefully at the remaining lease term, the ground rent payable to the freeholder, and the service charges and maintenance costs associated with the property. All of these factors can affect the property's value and your affordability.
If everything is in order, remortgaging a leasehold property is straightforward. The complications arise when the lease is short, ground rent is high or escalating, or there are disputes with the freeholder or management company.
Lease Length Requirements
The remaining lease length is the single most important factor for lenders when assessing a leasehold property. Most lenders require a minimum unexpired lease term at the end of the mortgage, not just at the start. Common requirements include:
- Minimum 70 years unexpired at the start – this is a typical threshold, though some lenders require 80 years or more.
- Minimum 40 to 50 years remaining at the end of the mortgage term – so if you want a 25-year mortgage, the lease would need to have at least 65 to 75 years remaining.
If your lease has fewer than 80 years remaining, it becomes increasingly difficult to find a lender, and the property's value starts to decline more rapidly. Below 70 years, your options are severely limited, and below 60 years, very few lenders will consider the property at all.
If your lease is getting short, it is worth exploring whether you can extend it before remortgaging. Under the Leasehold Reform Act 1993, qualifying leaseholders have the right to extend their lease by 90 years on payment of a premium to the freeholder.
Ground Rent and Its Impact
Ground rent is the annual charge paid to the freeholder as a condition of the lease. Historically, ground rents were nominal amounts, often just £50 or £100 per year. However, some modern leases include escalating ground rent clauses that can cause significant problems.
Since the Leasehold Reform (Ground Rent) Act 2022, new residential leases in England and Wales must have a peppercorn (zero) ground rent. However, this does not apply retrospectively to existing leases, so many properties still have ground rent clauses that lenders find problematic.
Most lenders will decline a property where the ground rent exceeds 0.1% of the property value or where it doubles more frequently than every 20 years. Leases with ground rent linked to the Retail Prices Index (RPI) are also viewed cautiously. If your lease has an onerous ground rent clause, you may need to negotiate a variation with the freeholder before you can remortgage.
Some specialist lenders are more flexible on ground rent, so a broker with experience in leasehold properties can be invaluable in finding options.
Service Charges, Cladding, and Other Considerations
Lenders factor service charges into your affordability calculation. High service charges reduce the amount of disposable income available for mortgage payments, which can limit how much you can borrow. If your building has recently imposed a large special levy for major works, this could also affect your application.
Following the Grenfell Tower tragedy, cladding and building safety have become major concerns for lenders. If your building has been identified as having unsafe cladding or is awaiting a fire safety assessment, some lenders may decline to offer a mortgage until remediation is complete. An EWS1 (External Wall System) form confirming the building's fire safety status may be required.
The Government's Building Safety Fund and various leaseholder protection measures introduced under the Building Safety Act 2022 are designed to ensure that leaseholders are not left with the costs of remediation. However, the practical impact on mortgage availability varies, and a specialist broker can help you navigate this complex area.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.