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New leasehold reform: Will this end the ground rent scandal?

With new leasehold reform, millions of leaseholders will save up to tens of thousands of pounds. Many in the property industry feel this will make homeownership fairer, but will it come into effect soon enough?

Under new legislation being brought forward, leaseholders will have a new right to extend their lease for 990 years. This will be at zero ground rent. The government has described these measures as part of the biggest reforms to English property law for 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 home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.”

Why is leasehold reform so important?

Several years ago, there were outcries about leasehold flats and homes that had been sold with clauses that meant unnecessary and unfair expenses. Some clauses meant freeholders would increase ground rent dramatically, including doubling every 10 years. For some homeowners, these costs increased so much they struggled to sell their property.

Mark Hayward, chief policy advisor at Propertymark, comments: “Our research ‘Leasehold: A Life Sentence’ in 2018 found that 46 per cent 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.”

Many in the property industry support the proposed leasehold reform. However, some want more detailed information. There are worries that this is causing greater confusion to leaseholders. Additionally, some feel the plans could take years to become law.

What is in the reform?

The reform will provide leaseholders the option to extend their lease by a maximum term of 990 years at zero ground rent. Leaseholders of houses have only been able to extend their lease for 50 years once and pay a ground rent. Flat owners have been able to do this multiple times with a peppercorn ground rent rate for 90 years.

Additionally, leaseholders have often faced expensive charges to extend their lease. However, this will change, including getting rid of certain costs, such as the “marriage value”. This has forced leaseholders to share any potential profit from extending a lease with the freeholder.

There will also be a cap on ground rent payable after a leaseholder extends the lease or buys the freehold. An online calculator will make it easier for leaseholders to find out how much it will cost to do either.

How will home ownership work in the future?

The government is establishing a Commonhold Council, which will be a partnership of leasehold groups, industry and the government. The council will prepare homebuyers and the property market with the widespread take up of commonhold ownership for new-builds.

This ownership model is common around the world. However, fewer than 20 developments across England and Wales have used this model that allows homeowners to own their property on a freehold basis. Apartment blocks will have joint ownership and management. This means when buying a house or flat, the homebuyer truly owns it and has greater control over homeownership costs.

What benefits will come forward?

Many homeowners will see direct benefits from this leasehold reform with 4.5 million saving up to thousands to tens of thousands. Additionally, it will allow leaseholders to buy a freehold more cheaply. This leads to lower homeownership costs and more straightforward transactions when buying or selling a property.

On top of that, it could make more homebuyers open to buying properties with shorter leases. And this could in turn lead to fewer properties sitting empty with short leases or high ground rents in place. Saving owner-occupiers money and improving investor’s yields, the leasehold reform is welcome news from many in the property industry, as long as it’s made clearer and implemented quickly.

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