How to use a bridging loan to extend your lease

Selling a property can be stressful at the best of times, and there are factors which can exacerbate the hassle of the process. If you own your property leasehold, for example, the length of time left on your lease will affect your ability to sell.

The length of time left on your lease will affect not only the value of your property, but also the ability of potential buyers to secure finance. Mortgage lenders will generally not be prepared to lend on a property with a short lease. As a rule of thumb, if your lease is 60 years or less, only cash buyers will be able to buy your property. This will severely limit your options as a seller.

You may therefore be considering extending the lease before you sell the property. Unfortunately, this isn’t a cheap process. Data from Money Saving Expert shows how steep the cost of extending can be. For leases with more time left on them, the price is smaller – their data suggests that the total cost of extending a lease with 95 years left should be about £7,500. However, by the time this gets down to 70 years, the cost has more than doubled, with an estimated typical cost of £16,500.

However, this is mitigated partially by the potential added value. Their table shows there is little point in extending at 95 years, as this will only add a potential £5,000. At 70 years, however, there is potential to add up to £26,000 in value—a profit of nearly £10,000.

Therefore, if you are looking to sell a property with a short lease, it may be worth spending the money to extend the lease before you try and sell it, as you will attract a wider range of buyers in addition to adding value.

How to finance extending your lease with a bridging loan

One way to finance a lease extension is to use a bridging loan. If you need to extend your lease—and the lease is short enough that this will be a profitable action—you could take out a bridging loan to pay the initial cost, and then use the sale as an exit strategy. Selling your property will be much easier with a newly extended lease.