How to buy a flat
From service charges to leaseholds, there are some things which make buying a flat very different to buying a house. But don’t worry – we’ll help you to get your head around how to buy a flat with this essential Pittis guide.
Basic differences between buying a flat and a house
You don’t own the land: Although there are exceptions to the rule, with a house, you’ll also own the freehold – or the land that the house sits on. With a flat, a landlord or freeholder does. This means you’ll need to formalise an agreement – known as a lease – stating what you can and can’t do with this land.
You don’t need to arrange building maintenance: Unless you own part or all of the freehold, things like gutter cleaning and repointing are managed by the freeholder (also known as the building owner or landlord) with a flat, although you’ll be expected to contribute financially. When you own a house, the responsibility is yours alone. Bear in mind, this may not be the case if you own the freehold or part of the freehold.. If this is the case, you’ll have to take responsibility for arranging the maintenance as well as footing at least some of the bill.
You may be restricted: If you buy a flat, there may be restrictions about the kind of alterations you can make – e.g. if you live above another flat, wooden floors may not be allowed.
What is leasehold?
When it comes to flat-buying, there can be some confusion around the leasehold. So, we already know that a lease is a legal agreement between the owner of the flat and the owner of the building and land that it sits on – but what does it include? Also, how long does it last? Here, we’ll cover everything that you need to know.
How long is a property leasehold?
New leases generally start at 99, 125 or 999 years. While this may seem like a long time, bear in mind that the same lease is passed from owner to owner, so it has to be.
Who can extend a lease?
According to the Leasehold Reform Housing and Urban Developments Act 1993, the majority of flat-owners are entitled to have 90 years added to their lease for a fair market price.
As long as you’ve owned your flat for two years or more, you should be able to extend your lease, if you wish. If your flat is a buy-to-let, two years will still apply since you don’t have to live in the flat in order to extend its lease.
How to find out how much time is left on the lease?
Your estate agent should be able to tell you how much time is left on the flat’s lease, however this will usually be based on what the seller says so always seek legal advice.
So, what should you do if the flat that you wish to buy has a short lease? In most cases this is considered to be below 85 years. A flat with a shorter lease shouldn’t necessarily put it out of the running for you. In fact, you can request that your seller gets the ball rolling with extending the lease to coincide with your purchase. It’s best to be done and dusted by the time you complete or you’ll have to wait the specified two years to be entitled to a lease extension.
Why extend your lease?
A longer lease will not only improve your resale chances for your flat, it can add thousands to its asking price. Just how much it’ll add will depend on how long your lease is to begin with. For instance, if your lease is 95 years or more you’ll probably end up just covering your costs. Shorter than this and you’ll be able to increase your asking price quite significantly.
When to extend a lease?
If you’ve 85 years left on your lease, you should look into extending it.
How much to extend a lease?
Just how much extending a lease will cost will depend on the length of your existing lease. If your current lease is between 80-90 years, you can expect to pay less than £10,000 to extend. Anything below this and your costs could run into the tens of thousands.
The good news is that, unless your current lease is over 95 years, you can expect to cover your costs AND add significant value to your property. Ask us in-branch for bespoke leasehold advice that’s tailored to your own situation.
Common restrictions on a lease
Pets: It’s rare but some leaseholds prohibit you from keeping larger pets, such as dogs. You may require permission from the freeholder first.
Making changes: Have some renovations in mind for your flat? You may need to check with the freeholder, mortgage provider and receive planning permission and building regulation approval before you begin.
Letting: Planning to rent out a room or the entire flat? You may need to check that your lease or mortgage doesn’t prohibit this.
What is a property service charge?
Put simply, service charges in residential properties are a fee – paid either annually, monthly or quarterly – which goes towards the maintenance of your building and its grounds.
What does a property service charge include?
Just how much you pay will depend largely on where your flat is and the facilities that it contains. At the very least, your property service charge should contribute towards:
General cleaning of communal areas, such as the hall or any shared facilities.
Upkeep of communal grounds or gardens.
Any lift servicing, if needed.
Maintenance of building heating and lighting systems.
Ad-hoc repairs in communal areas
How are service charges calculated?
Service charges are based on the total costs of repair, maintenance, management and insurance of the building in any given year equally divided by the number of flats in the building. They should be itemised in your leasehold agreement.
Bear in mind that your annual service charge can go up or down – depending on how much maintenance and/or repairs are needed. Some leases have a fixed service charge but you’ll need to check with your freeholder if this will apply to you.
How much is a service charge?
The location of your flat and its facilities will affect how much you’ll pay. However, on average in the UK, you can expect to pay between £1,000 and £2,000 per annum.
If you rent out your flat, you could in theory pass this charge onto your tenants. However. this will need to be set out in your tenancy agreement ahead of time.
To sum up, how does buying a flat differ from buying a house?
Whether you’re currently looking for houses, bungalows or flats to buy in the Isle of Wight, your search and buying journey will feel similar. However, there are some exceptions you should be aware of:
Typically, when you buy a flat, you’ll be offered it as leasehold not freehold.
Leasehold means that you’ll need to formalise an agreement (or a ‘lease’) with the owner of the freehold about what you can and can’t do with your property and the land it sits on.
If the flat’s lease is 85 years or less, you should look into extending it.
You may have to pay a property service charge for your new flat, so this cost should be factored into your budget.
Property service charges vary, but on average in the Isle of Wight you should expect to pay between £1,000 and £2,000 per year.
Take a look at the latest flats for sale on the Isle of Wight or pop into your local Pittis branch for more lease advice.