Buying property is a milestone investment for many individuals but, when that property comes with a short lease, transaction complexities can multiply.
Whether you have questions about eligibility, or how the process of securing a mortgage on a short-lease property works, this article explains what short lease mortgages are, why they exist, key financial implications to consider, and how professionals can navigate them.
What is a short lease?
In order to understand what a short lease is, let’s take a step back to explain what a standard property lease is. Essentially, a property lease is a long-term rental agreement. The leaseholder owns the right to occupy and use the property for a set number of years, while the freeholder owns the land and the structure itself.
In the UK, residential property leases typically begin with terms of at least 125 years, but as time goes on, the remaining lease shortens. Once it falls below 80 years, it’s classified as a short lease, which can restrict mortgage availability and financing options.
This is because once a lease drops below the 80-year mark, extending the lease becomes increasingly expensive and therefore the value of the property starts to decline. For mortgage finance, these shorter terms present significant hurdles.
In prime London locations where prestigious addresses and historic buildings are common, short leases are not unusual. However, securing a mortgage on these properties requires strategic planning, specialist advice, and a solid understanding of how lease length impacts lending criteria.
Why are there so many short-lease properties in prime London?
Many property buyers are surprised to find luxury flats in prime London areas such as Mayfair or Regent’s Park have only 20 to 50 years left on their leases. Why? The explanation lies in land ownership structures.
The short lease phenomenon is often tied to estates such as the Crown Estate, Grosvenor, Cadogan, or Howard de Walden, which own large parts of central London. These estates rarely sell the freehold and instead grant long leases that diminish over time.
Here’s why they do this:
- Long-term asset control: The freeholders maintain control and influence over the area.
- Wealth preservation: As leases expire, properties revert back to the estate, offering resale or redevelopment opportunities.
- Exclusivity: The ability to manage and curate neighbourhoods over time maintains prestige and market appeal.
These arrangements mean many high-value properties in prime central London are sold with short leases simply because the original leases are now nearing their end.
Why do short leases complicate mortgages?
From a lender’s perspective, lease length is a major risk indicator. As the term shortens, the property’s market value declines and the associated risks increase.
Minimum lease terms
Most lenders require at least 70–80 years remaining on the lease at the start of the mortgage and typically want the lease to last at least 30–35 years beyond the end of the mortgage term.
For properties with fewer than 80 years remaining, it’s important to seek professional mortgage advice as specialist lenders or cash purchases may be the only options available.
Loan-to-Value (LTV) restrictions
Because short leases reduce the property’s market value, lenders typically reduce the loan to value (LTV) ratio meaning borrowers may be unable to obtain their required loan amount. Standard mortgages can achieve between 70-90% LTV but for short lease mortgages, as low as 60% or less is the threshold for leases under 80 years.
Cost of lease extensions
Once a lease dips below 80 years, a concept called marriage value kicks in. This is defined as the increase in a property’s market value when a lease is extended or when a leaseholder buys the freehold.
Marriage value increases the cost of extending the lease, sometimes significantly, and lenders will factor this into affordability calculations, thereby reducing a client’s borrowing potential.
Marketability concerns
Due to their complexities, properties with short leases can be harder to resell and, if the lease continues to tick down the pool of buyers and lenders shrink.
Naturally, lenders can be wary of becoming stuck with an unsellable asset if the borrower defaults, so take increased precautions in the first instance.
Prestigious locations = different rules
On estates like the Crown Estate or Grosvenor, bespoke lending options may be available, but this requires specialist advice. With access to bespoke mortgage products from private banks and niche lenders, flexible options are available for high-net-worth individuals who are keen to purchase real estate assets with short leases.
Changes to short lease property law
The Leasehold and Freehold Reform Act 2024 is a law yet to come into force but expected to make it easier and cheaper to extend short leases by abolishing the “marriage value” for leases under 80 years, and offering extensions of leases by 990 years instead of the current 90. In turn, this should improve the mortgage landscape for short leasehold properties.
The exact date of implementation is yet to be determined, but expected no later than 2026.
By way of example: A professional in Mayfair
Consider a professional buyer looking at a £2.5 million flat in Mayfair with 52 years left on the lease. They may:
- Secure only a 60% LTV mortgage from a niche lender
- Pay a higher interest rate due to the risk
- Need to allocate funds for a lease extension (potentially £500,000+)
- Face additional legal and valuation costs
Without clear planning, this becomes a high-risk transaction. But with the right team and financing in place, it can be a smart move in a prestigious location with long-term value.
Strategies for securing a mortgage on a short-lease property
If you’re considering such a property, preparation is key. You’ll need both financial readiness and a good advisory team to help you navigate this complex lending landscape.
Here are practical steps to consider:
- Engage a specialist mortgage broker
Work with a mortgage broker experienced in short lease transactions. The team at LDN Finance are experienced in arranging mortgage finance for this type of challenge, and have access to:
- Specialist lenders
- Private banks
- Custom loan products
- Professional services – for example, solicitors and insurance professionals – who are experienced in properties with short leases.
- Plan for a lease extension
To benefit you long-term, have a plan and funding ready to extend the lease early. This will not only increases the property’s value, but will also expand your mortgage options and reduce long-term risk.
- Negotiate with the Seller
In some cases, the property seller has been willing to start or pay for the lease extension process as part of the closing deal. This can be a strong negotiating point.
- Use a Specialist Solicitor
A solicitor with leasehold experience will:
- Assess the lease for hidden issues
- Review service charges and ground rent
- Support your application for lease extension
At LDN Finance, we’re proud to work with trusted partners in all areas of property finance to help you secure the loan you require. For an introduction to specialist solicitors with short lease experience, get in touch with our team.
Arranging short lease mortgages
Short-lease properties can be an opportunity or a liability, depending on how well they’re handled. For professionals navigating the London market – especially in the capital’s golden postcodes – it’s essential to understand leasehold law and mortgage criteria, work with experienced advisers, and factor in the full financial picture, including lease extension and specialist solicitor costs.
With careful planning, securing a mortgage on a short-lease property is entirely possible, and potentially rewarding.