Time to remortgage

THE QUESTION

The lender I’m with has revised their lending criteria to exclude the mortgage I have had with them and I’ve reached the end of term and need to remortgage.

The property is a studio flat with 63 years lease remaining, value £65k with 40k outstanding, but it is less than 30sq m.

What do you recommend?

THE ANSWER

You have two problems..

• A small space
• A short lease (at least in mortgage terms)

The majority of lenders set 30sq m as their minimum space threshold based on their belief that the marketability diminishes significantly below that figure i.e. it is so small it turns off potential buyers.  However, there is not much you can do to increase its size.

Lenders get very jittery about short leases (anything less than 75 years), also due to the reduced marketability.  In a stagnant market, the flat will decline in value as each year ticks down until the lease expires.  Typically they can require anything from 25 to 45 years plus the mortgage term on the remaining lease before they will grant a mortgage.

However, you can do something about the lease i.e. extend it. If you have owned the flat for at least two years you can negotiate with the freeholder to extend the lease back up to 99 or 125 years.  Naturally there will be a cost to this, but you have little alternative as this flat is not far short of being unmortgageable, if it has not reached that point already.

A good broker could find you a lender for a sub 30sq m flat; they could also find you a lender for a 63 year lease; the challenge will be to find a lender that will accept both situations.

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