The proposed reforms to the “feudal” leasehold system could potentially increase property prices by an average of 9.9%, according to a study conducted by property consultancy Knight Frank and Bayes Business School. This comes in light of the Leasehold Bill proposed by Michael Gove, the levelling-up secretary. If passed, it could significantly impact the value of homes with short leases.
England and Wales are unique in still having around five million leasehold properties, a housing tenure system that dates back to the times of William the Conqueror.
Leasehold has been labelled as an unfair and outdated system by Gove, who has been working tirelessly to phase out this relic from medieval times.
Under the leasehold system, homeowners own the right to live in their homes for a set duration, typically between 99 and 125 years. However, once a lease falls under 80 years remaining, it is considered a “short lease”, which can lead to substantial financial implications for the leaseholder, who may need to pay tens of thousands of pounds to the freeholder to extend the lease or sell the property.
The proposed reforms would enable leaseholders to extend their leases up to 990 years, eliminating the fear of lease expiry. The government also plans to abolish marriage value, a concept that currently increases the cost of extending a lease, and cap ground rents at a “peppercorn” rate, reducing the financial burden on leaseholders.
Critics warn of potential unintended consequences of these reforms. Dr James Culley, a partner at Knight Frank, cautioned that while the intentions behind the government’s proposals are commendable, there could be unforeseen repercussions, such as reduced rental income for pension funds and possible difficulties for first-time buyers entering the property market.
However, David Pett, Solicitor with MJP Conveyancing, a national conveyancing provider specialising in leasehold property, said, “These reforms are a much-needed step towards creating a fairer housing market. It’s time to phase out the outdated and inequitable leasehold system.”
The impact of these reforms will be significant in urban areas like the West Midlands and London, where there is a large stock of short-lease homes. The study also suggests that these reforms could help narrow the price gap between flats and houses, which is currently at its widest in 30 years.
While the potential repercussions of these reforms need to be carefully considered, it is clear that the proposed changes could have a transformative effect on the property market. By phasing out the archaic leasehold system, we could see a more equitable and just housing market emerge.