New leasehold reform: Will it make homeownership fairer?

New leasehold reform will save millions of leaseholders tens of thousands of pounds
What does the reform change?
Will it make homeownership fairer?

What is the new leasehold reform?

New legislation that has been brought forward, will give leaseholders the right to extend their lease for 990 years at zero ground rent. The leasehold reform will save millions of leaseholders up to tens of thousands of pounds. The government described these measures as part of English property law’s biggest reforms in 40 years.

Housing Secretary Robert Jenrick says: “Across the country, people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

“We want to reinforce the security that homeownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.”

What does the reform change?

The reform will give leaseholders the right to extend their lease by a maximum span of 990 years with zero ground rent. Previously, leaseholders of houses have only been able to extend their lease for 50 years at a time and had to pay ground rent.

Leaseholders have also been met with expensive charges to extend the lease. Some of these extra costs have now been abolished with the reform, such as the “marriage value”. This required leaseholders to share information with the freeholder about potential profits from extending a lease.

A cap on ground rent, the cost paid when a leaseholder extends the lease or buys the freehold, will also be introduced. An online calculator will now make it easier for leaseholders to know how much it will cost to do either. This hopes to make the costs associated with a lease more transparent.

Will it make homeownership fairer?

While the proposed leasehold reform has much to support, many in the industry feel they need some more detailed information. There are concerns that the reform has created further uncertainty for leaseholders. Moreover, there is apprehension that the proposed actions could take years to become law.

However, for many in the property industry, there is a shared hope that the reform will make homeownership fairer and put an end to the ground rent scandal.

What is the ground rent scandal?

The ground rent scandal is one of the reasons why leasehold reform is so important. Objections to the unfair expenses on leasehold flats and homes sold with unclear clauses began some years ago. Some clauses involved freeholders increasing ground rent excessively. In some cases, leaseholders saw their rent double every ten years. The increased costs left some homeowners struggling to sell their property. As a result, properties with short-leases or high ground rents are often left vacant.

Mark Hayward, the chief policy advisor at Propertymark, discusses the organisation’s research into the ground rent scandal:

“Our research’ Leasehold: A Life Sentence’ in 2018 found that 46 percent of leasehold house owners were unaware of the escalating ground rent when they purchased their property. Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”

Conclusion

Homeowners will see direct benefits from the government’s leasehold reform. 4.5 million homeowners will save up to thousands to tens of thousands of pounds. Furthermore, the reform will allow leaseholders to buy a freehold for a lower price. Overall, homeownership costs will become cheaper, and property sales will be more straightforward.

Let’s not forget about the benefits for properties with shorter leases. Properties with short-leases or high ground rents are sitting empty around the country as owners struggle to sell. Homebuyers will now become more open to purchasing properties with shorter leases leading to fewer stranded, vacant properties.