Understanding Shared Ownership Mortgages with Greenacre Financial Services
When navigating the world of property finance, one term that often arises is “short lease mortgages.” Understanding this concept is crucial for anyone looking to purchase or refinance leasehold property. Let’s delve into the intricacies of short lease mortgages, covering everything from interest rates to lease extension costs.
What is a Short Lease Mortgage?
A short lease mortgage is a type of financing available for properties, normally flats, with a relatively short lease term remaining, typically less than 70 years. Unlike freehold property, normally houses, where you own the land outright, leasehold property means you own the property for the length of the lease agreement, after which ownership reverts to the freeholder.
Why Consider a Short Lease Mortgage?
There are several reasons why someone might consider a short lease mortgage:
- Affordability: Short lease properties can be significantly cheaper than freehold or long lease properties, making them an attractive option for buyers looking for a more affordable entry into the property market.
- Investment Opportunity: With the right finance and planning, extending the lease can increase the property’s value, providing a substantial return on investment.
The Role of Mortgage Lenders
Not all mortgage lenders offer loans for short lease properties due to the increased risk associated with them. However, many lenders do specialise in leasehold mortgage products, often requiring a minimum lease length to be eligible. It’s crucial to work with a mortgage broker who understands the nuances of leasehold agreements and can connect you with the right lenders.
Interest Rates and Costs
Interest rates for short lease mortgages can be higher due to the limited lenders available in this space compared to a long lease of freehold property. Additionally, borrowers may face higher upfront costs, including higher deposit requirements and fees for the lease extension process.
Lease Extension
One of the most significant considerations when dealing with short lease properties is the potential need for a lease extension. A statutory lease extension can add 90 years to the remaining term of the lease, making the property more attractive to lenders and future buyers. However, the lease extension costs can be substantial, including the premium paid to the freeholder, legal fees, and valuation costs.
Bridging Loans as a Financing Solution
For those needing to extend the lease before securing a traditional mortgage, a bridging loan can be an effective short-term finance solution. Bridging loans can provide the necessary funds to cover the lease extension costs, allowing you to refinance with a long-term mortgage once the lease has been extended.
The Process of Obtaining a Short Lease Mortgage
- Property Valuation: Obtain a long lease valuation to understand the property’s worth if the lease were extended.
- Find a Mortgage Broker: Choose a mortgage broker experienced in lease lending work to navigate the complexities of leasehold mortgage products.
- Apply for a Loan: Submit your application to lenders who offer short lease mortgages, highlighting any plans for lease extension to improve your application’s attractiveness.
- Lease Extension: If required, secure a bridging loan to finance the lease extension, increasing the property’s lease term.
- Refinance: Once the lease extension is completed, refinance with a traditional mortgage to benefit from better interest rates and terms.
Minimum Lease Requirements
Mortgage lenders often have specific minimum lease requirements. Typically, lenders prefer properties with at least 25-30 years left on the lease after the mortgage term ends. For a 25-year mortgage, this means the property should have a minimum lease length of 50-55 years.
The Benefits of Long Leases
Securing a long lease or extending an existing lease can significantly enhance a property’s value and marketability. Long leases provide greater security for both the lender and the borrower, often resulting in lower interest rates and better loan terms.
The Importance of Professional Advice
Navigating the complexities of short lease mortgages requires professional advice. Qualified mortgage brokers like us here at Greenacre Financial Services can guide you through the process, ensuring you understand all the costs and implications involved. We can also help you explore options like bridging loans to manage lease extension costs effectively.
Contact Greenacre Today
Short lease mortgages offer a viable path for purchasing leasehold property, but they come with unique challenges and costs. By understanding the process, working with experienced professionals, and considering options like bridging loans for lease extension, you can successfully navigate the world of short lease property finance.
At Greenacre Financial Services, we specialise in helping clients find the right mortgage solutions for their unique needs, ensuring you can make informed decisions about your property investments. Whether you’re dealing with a short term lease or looking to extend your leasehold agreement, we’re here to help you every step of the way.
For more information about any of our services, including short lease mortgages, please do not hesitate to get in touch by calling us on 0203 3939 222 or email info@greenacrefs.co.uk.
