FAQ – Short Lease Mortgages

What does “Lease” mean?

It is defined as “a contract between two parties whereby one party agrees to give possession of something to another”. In this case, the person giving up ownership rights over their home will become the tenant. The landlord owns the house outright and rents out part of their property to someone else. This type of agreement usually lasts from 1 year to 99 years. To know more about such mortgage products you can contact a experienced independent short lease mortgage broker.

What kind of conditions do mortgage finance companies insist on when lending on a contract extension?

When mortgage companies lend money against properties where the owner holds a current lease over an extended period, they usually require two things: firstly, that the tenant pays the rent into their bank account at regular intervals during the tenancy, and secondly, that the landlord agrees to provide them with evidence that they intend to continue letting out the premises for the same purpose throughout the remainder of the original Term.

Also, read about the right to buy mortgages with no deposit amount.

Why do mortgage lenders check the length of a “Lease”?

The reason mortgage companies want to know how long the Term is for is to assess whether there is any risk associated with lending money against the property. If the Lease expires in less than five years, most lenders won’t consider extending their loan. If the Lease runs out within 10-15 years, some lenders may still extend their loans. However, these mortgages tend to come with higher interest rates.

What type of property would qualify for a Short Term Lease mortgage?

If the property you want to buy has a lease term of less than 70 to 80 years still to run, therefore, you will be looking to the short term contract mortgage provider. There are also different types of properties such as property with agricultural ties which can you read in our other article.

How long should my Lease last before applying for a short-term mortgage?

Should I extend my Lease?

It depends on your requirement and to be sure of not accepting the estate agents promise of easy extensions of contracts without consulting a financial advisor.

How to get a mortgage on a Leasehold Property

The first step in getting a mortgage on a leaseholder home is finding one that suits your needs. You may be able to buy a new build or even renovate an existing house into a leasehold property. The main thing to consider here is whether it’s possible to convert the building back into a freehold once the Term expires. If not, you could end up paying rent forever! Once you know what type of property you want, you should start looking at mortgages.

What is a Statutory Lease Extension Process?

A statutory lease extension provides leaseholders with the ability to increase the current Lease upto 90 years. For example, a current lease of 75 years could be extended to 165 years.

What are some major points while considering a mortgage for a Short-Term Lease?

Some of the main points to consider for mortgage products are Service Charges, Ground rent, contract period, terms & conditions on renewing and extending.

What does leasehold mean when buying a house?

Properties with leases mean selling the ownership rights to someone else while retaining the legal responsibility for paying off any outstanding debts or mortgages. This arrangement works well for those wanting to buy a home but not necessarily own one outright. The person leasing the property has full control over all aspects of running the business whilst still having access to capital from the bank should they require it.

What is a Short Term Mortgage Finance?

A short term mortgage is a loan for up to 3 years that allows borrowers to pay off their existing debt over this time. The interest rate on these loans is usually higher than standard mortgages, but they allow more flexibility in terms of how much money can be borrowed.

The main benefit of using a short-term loan is that it gives you access to funds quickly without having to wait months or even years before your application will be approved. This means that if you need cash urgently, then a short-term loan.

Why won’t mortgage lenders offer funding for short-lease properties?

Short-lease properties have historically been difficult to finance because of the uncertainty around the length of the lease. On the other hand, new-build houses are more favoured by the banks. However, as the market becomes increasingly aware of the benefits of short-lease products, mortgage lenders are starting to look more favourably upon them. Also, the affordability criteria and mortgage period differ from lender to lender.