Leaseholds have certainly come into the spotlight over recent years with the Law Commission investigating unfair practices and the Competition and Markets Authority looking further into the mis-selling of leasehold property. Now, a private members bill has been introduced to the House of Commons that, should it make it to the statute books, will certainly help “shake up” the market.
One of the most critical complaints of leasehold is that high ground rents and, particularly leases that allow for the significant escalation in ground rents on a periodic basis, can quickly result in a properties becoming unsaleable. Mortgage lenders are generally wary of lending where the ground rent is in excess of 0.1% of the property value and, it is almost impossible to mortgage a leasehold where ground rent is in excess of 0.2% of value. The result is that leaseholders are becoming “trapped” in their homes. According to the latest data, there are now 100,000 leaseholders who have ground rents above this 0.1% threshold.
To try to address this matter, Eddie Hughes, the Conservative MP for Walsall North, introduced the “Ground Rent Leasehold Properties Bill” on the 25th June 2019. The Bill passed its first reading. If it becomes law, the Bill will cap ground rents at the lower of 0.1% of the market value of the property, or £250. The Bill also seeks to make property developers liable for the costs that would be incurred by leaseholders who would wish to vary their leases to reflect the cap.
In addition, as ground rent is one of the key determinants of the cost of renewing or extending the lease, leaseholders can find themselves caught in the “perfect storm” where they can’t sell their home and the value of the property is being adversely impacted by a declining lease that is too expensive to renew.
As we explain in our article on buying leasehold property, it is not the concept of “leasehold tenure” that is in itself an issue, its “bad leases” that are the issue. Should the Bill be successful, it will certainly address some of the fundamental concerns that cause "bad leases".
If the Bill becomes law, the value of freehold sales/investments and the cost of renewing leases will both be fundamentally impacted.
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If you want help with terms used to describe leasehold ownership and conveyancing, please see our jargon busting blog.