The UK property market has a rich history of intricate and sometimes perplexing arrangements. One of these is the leasehold system, which has become a hot topic for many homeowners and prospective buyers. Micheal Gove is proposing reforms to the system and the Daily Mail published a review of his suggestions.
The Leasehold Challenge: A Personal Story
Meet Christine and Daniel Harrison, a couple who find themselves in a predicament common to many homeowners. They purchased a beautiful five-bedroom house near Ormskirk, West Lancashire for £600,000, unaware that it was a leasehold property until the last minute. Today, they face an annual ‘ground rent’ charge of £350 to the freeholder, Mainstay Residential, owned by Aviva. They could eliminate this fee by buying the freehold, but it would set them back a whopping £11,500.
This means the Harrisons, like many others, are in the unusual position of owning their house but not the land it stands on. In Christine’s words, the ground rent feels like “money for old rope,” a fee for which they receive no real benefit.
The Impact of Leasehold on Property Value
Such ground rent charges can have detrimental effects on property value. Jo Darbyshire, another homeowner, faced a staggering £40,000 bill for her freehold after it was sold to an investment company. She had initially anticipated a manageable £5,000 cost. As the leasehold system currently stands, ground rents can surge over time, impacting a property’s resale value and deterring potential buyers.
Government Intervention: Hope on the Horizon?
Change may be coming, though. Michael Gove, the Levelling-up Secretary, announced potential reforms. The primary focus is on ensuring new houses are sold as freehold, eliminating the cumbersome ground rent scenario for future homeowners. This raises questions about the fate of current leaseholders like the Harrisons and Darbyshire.
Experts anticipate measures to assist existing leaseholders, possibly capping ground rents at very low rates. While this potential legislation promises relief for some, those who’ve already paid hefty sums for their freeholds might not receive any compensation.
Extension of Leases: A Light at the End of the Tunnel
For those feeling trapped by short leases, there’s more good news. Current homeowners can look forward to an increase in the standard contract lease extension. This will move from a 90-year extension for flats and 50 years for houses to a whopping 990 years for both. Generally, properties with shorter lease durations are valued less, so this change could add significant value.
Additionally, the ‘marriage value’ system, where homeowners split any increase in property value resulting from a lease extension with the freeholder, may be abolished. This would let homeowners retain the full uplift in their property’s value when extending their lease.
The Wait for Change
However, it’s essential to note that while these reforms sound promising, they won’t bring instant results. The value of leasehold properties might not immediately reflect these improvements. Some, like Joanne Tracey from Erdington, West Midlands, may still find it challenging to sell their leasehold homes, even at a reduced price.
What About Flats?
The leasehold ban’s scope currently extends only to houses, leaving out flats which make up a significant portion of leasehold properties. Some experts, like housing campaigner Harry Scoffin, believe this approach is insufficient, arguing that all homeowners deserve control and autonomy over their properties, regardless of the type.