According to Government figures, there are almost 5 million leasehold homes in England and Wales. The majority of which are flats/apartments but in more recent years, developers have been selling new houses with leases too.
As our sister company LandlordBuyer wrote about in this blog, leaseholds are back in the spotlight thanks to The Leasehold & Freehold Reform Bill. This item of legislation is currently working its way through the House of Commons and the House of Lords, with the intention for it to pass into law before the General Election.
If and when adopted, it promises to make extending a lease, or buying the freehold, an easier, simpler and cheaper exercise for leaseholders. The Bill also seeks to ban housebuilders from selling new homes in England and Wales as leaseholds.
Open Property Group has already been contacted by a number of leaseholders looking for advice on what to do with their property, especially among those who have less than 80 years left on their lease. We have explored the three main options open to leaseholders, as detailed below:
The 2024 property market has got off to a good start, thanks to dipping inflation, a flatlining base rate and decreasing mortgage rates. Buyers are returning to the market, and both the Halifax and Nationwide report that house prices have started to rise. Now may feel like a tempting time to put a leasehold property on the market.
It’s worth noting that potential purchasers will pay particular attention to the length of the lease. Generally, a lease with less than 80 years is considered a short lease. The property’s value will decrease with every year that passes and a valuation will reflect this. A short lease is also one of the negative aspects that can make a property unmortgage-able. Any buyer who needs a mortgage to purchase may be excluded from the process, leaving only cash house buyers as viable options.
One of Open Property Group’s specialisms is purchasing leasehold properties, particularly those where the lease is classed as short. We won’t ask the leaseholder to extend the lease and we buy with cash, therefore we don’t need to secure a mortgage. If you’d like to sell your leasehold property sooner rather than later, you may find our Q&A guide to selling with a short lease helpful, or you can get a free cash offer online.
The Leasehold & Freehold Reform Bill is set to bring a generational change to the system and some leasehold homeowners may hold back from selling until the Bill has become law. Many leaseholders think that when it becomes easier and cheaper to extend a lease, their property’s value and appeal will increase, although this is untested thinking and presents a risk.
The leasehold reforms won’t happen overnight, however. At the time of writing, the Bill was at the committee stage and is anticipated to move to the reporting stage before spring. There is still a third reading to go before the entire process is replicated in the House of Lords. Once changes, additions and deletions are made – meaning what was initially proposed at the start may not actually happen - the Bill will go up for Royal Assent and be adopted as law.
Legal experts are speculating that the Bill will not be enacted before the summer of 2024 and there may be a phased entry for some aspects, although the Secretary of State has not set a date of implementation. If there are any delays, as we have seen with the Renters’ Reform Bill, the Leasehold & Freehold Reform Bill may be scuppered by a General Election. Don’t forget, a leasehold property’s value will diminish all the while the Bill is debated and the lease runs down.
Extending a lease so it’s more than 80 years should make a property more desirable and increase its value. It will certainly make the property more mortgage friendly but an extension comes at a cost. The cost to extend a lease needs to be balanced with the value it adds to the property, versus what the home could fetch with an un-extended lease.
Currently, lease extensions are capped at 90 years for flats and 50 years for houses. The Bill proposes this is changed to a new standard 990-year lease extension across both property types, so it makes sense why some leaseholders may wait to extend their lease. This may not be an option for leaseholders who need to move quickly.
There is another pain point on top of the extension cost itself. Marriage value - the difference in the value of the flat with its current lease and the value once the lease has been extended – needs paying by the leaseholder to the freeholder where the lease has less than 80 years and the leaseholder serves formal notice to extend. One reform in the Bill is to abolish marriage value, which may provide another reason to hold on for changes to take effect.
If you’d rather not deal with leasehold extensions, you can sell to Open Property Group today. We buy all types of leasehold homes - flats, maisonettes, houses and all properties that have a short lease. A sale to us is quick and guaranteed – no chain, no agents’ fees and no delay.
Please contact the team to discuss the type of leasehold property you own or request a free, no-obligation cash offer now.
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