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Lease Extensions and Remortgaging

Apr 25, 2023

Lease extensions can be costly procedures to pay for out of pocket, but they are well worth the investment.

In many cases, the best way to pay the premium for extending your lease is to borrow money or remortgage a property.

If you’re curious about how remortgaging and releasing equity works regarding leasehold properties and how it can help pay for your lease extension – this is the article for you. 

Can you remortgage to cover the cost of a lease extension?

Yes – you can release equity towards your lease extension premium by remortgaging. 

Doing so is a relatively simple two-part process; re-mortgage and extend your lease with the borrowed money.

However, many lenders are only prepared to give out money according to a set of criteria, primarily how many years you have left on your lease. Things become more complicated if your lease has already dipped below 80 years.

Most lenders are hesitant to lend on leasehold properties with fewer than 80 years remaining; some stricter lenders even place their cut-off point at 85 years!

 

When should you start applying for a remortgage for a lease extension?

When to borrow depends on the terms of your mortgage agreement. 

To ensure your lease doesn’t drop below 85 or 80 years, bear in mind how long it will take to acquire funds from your lender.

  • Variable-rate mortgage:  If you’ve got a variable-rate mortgage with no fixed term, you should be able to acquire the money to extend your lease quite easily at any time. 
  • Fixed-term mortgage: With a fixed-term mortgage, you may have to start paying early repayment charges to get a remortgage. Otherwise, you’ll have to wait until your current fixed-term ends, which could be a few years down the line.

Generally, if you have sufficient equity in your property and pass the checks, most mortgage lenders will happily offer you a remortgage to extend your lease. 

Your lender may even offer you a further advance to borrow more on your current mortgage instead of having to remortgage.

We suggest you either use our Lease Extension Calculator or contact us for an estimate of your premium so you know how much is appropriate to borrow.

Can you remortgage to pay for a lease extension on a short lease?

In the case of short leases, remortgaging to pay for a lease extension is more complex because lenders are hesitant or even opposed to paying out. 

This creates a dilemma for leaseholders because:

  • The lease extension can’t be completed until the freeholder has been paid.
  • The mortgage (to pay for the extension) won’t be granted until there is a longer lease.

There is a way to solve this tricky situation – by extending your lease and completing your remortgage simultaneously. 

A single specialist solicitor can handle both transactions simultaneously. Using their legal expertise, they can complete the lease extension at the same time as the equity release loan is made.

As you can see, this is a more complicated situation to navigate. To avoid falling into this trap, keep an eye on the remaining term of your lease and aim to put the extension in motion before it dips too low.

We advise looking into a lease extension as soon as the fixed period has 90 years remaining, especially if you wish to fund it by remortgaging.

Speak with a lease extension specialist.

If you’re considering extending your lease or have more questions regarding using a remortgage to fund your lease extension, book a free appointment with our specialists.

Reach out to us by filling in our helpful online contact form, emailing [email protected] or calling us directly on 0800 098 2770.

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