Finally, some good news for leaseholders: in his first King’s Speech, King Charles confirmed that change was afoot and that the widely criticised leasehold system was to be reformed.
His exact words were: “My ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackle the exploitation of millions of homeowners through punitive service charges.”
In the wake of this, the government has confirmed plans to cap ground rents and create a fairer system for millions of leaseholders, many of whom have unwittingly bought properties that are blighted by ground rents which are contracted to spiral. In his capacity as Secretary of State for Levelling Up, Housing and Communities, Michael Gove has been an outspoken critic of the concept of leasehold. He said: “Ground rent can feel like an annual reminder that you do not own the land your home stands on, that your lease on it is finite, and that there is a payment for the privilege of staying there. Today we are taking further steps to right that wrong – consulting you, the public, about how best to change this system so leaseholders are not exploited any longer and can take back control of their own destiny.”
But what will the new Leasehold and Freehold Reform Bill actually mean? It doesn’t go so far as to abolish leasehold entirely, which is something that Gove seems to have hinted at in the past. However, it will remove the current requirement for leaseholders to have owned their house or flat for two years before being eligible for a lease extension, and increase the standard lease extension term from 90 years to 990 years, with ground rent reduced to £0. Existing ground rents will be capped, and the scheme will also make it easier to extend the lease (currently this can be a costly and drawn-out process), and, crucially, remove the onus on the leaseholder to pay the freeholder’s legal costs. Plus, the new bill will ban the creation of new leasehold houses, promising that “every new house in England and Wales will be freehold from the outset”.
Missing from the bill, however, is any mention of Marriage Value. This is a system whereby a lease that falls below 80 years becomes significantly more expensive to extend, because of the perceived ‘marriage value’ for which the freeholder must be compensated. There has been talk of abolishing it entirely, which would be of enormous benefit to those leaseholders with short leases – but this is not currently part of the new scheme.
Still, these changes will support the housing market, and make a huge difference to those struggling with soaring ground rents. According to the government’s research, 49 per cent of leaseholders are first-time buyers, and many of them are struggling to sell properties whose leases are either nearing 80 years, or have increasing ground rents attached (or both) – so these welcome changes should stimulate new movement throughout the market.
