Changes to Leaseholds – What You Need To Know
A leasehold is when you buy the rights to a property from a freeholder for a set amount of time. You typically pay ground rent so that the freeholder can ensure that things like fire safety, insurance and other building maintenance are covered when you live in a block of flats.
It is estimated that there are currently around 4 million leasehold properties that exist in the UK. Ground rent can be high and freeholders can restrict the leaseholder from making changes to a property or make them pay a fee.
It is possible, and often necessary, to extend your leasehold by up to 125 years but this can cost a large amount and also means that the leaseholder has to foot the freeholder’s legal bills as well as their own. If a leasehold ends, the leaseholder must forfeit the property.
Expiring leaseholds can also affect the value of your property, especially when your leasehold is approaching around the 80-year mark. Some people choose to remortgage to cover the costs involved in extending a leasehold in order to maintain the value of their property.
Buying the Freehold
Residents of a shared property like a block of flats, can jointly buy the freehold of their building altogether and extend their leases by 999 years. This has many benefits such as cutting out ground rent and increase the value of individual homes. However, this process can cost more than extending your own leasehold and means that neighbours have to work together and agree on the maintenance of the freehold, which can be challenging.
What is changing with Leaseholds, Freeholds and Commonholds?
In 2017, a review began by the Law Commission to ‘end the feudal practice of leaseholds’, to make it easier, quicker and cheaper for people to purchase freeholds.
In 2019, the government banned leaseholds for houses and cut ground rent to zero, but this was not a retrospective ban so many property owners are still struggling to extend leaseholds and manage high ground rent costs.
In 2020, the Law Commission asked for costs to be capped for extending leaseholds and for the process to be made easier. Whilst improvements have been made, the average extension will still cost the leaseholder an average of £10,000 and campaigners called for further changes.
What is Commonhold?
Commonhold is the ‘new’ system proposed by the Law Commission where property owners can own the freehold to a property like a flat and can appoint a building manager. This means no ground rent and more control over your home. Commonholds were first introduced in 2002, but since then only 20 or so properties have been sold under this scheme. This is thought to be due to mortgage lenders being reluctant to lend to those exploring commonhold property options, which are heavily reliant on neighbours working together to maintain freeholds and can be a tricky obstacle.
Watch this space! As the Government moves to back commonhold property practices with the creation of a Commonhold Council at the start of 2021, more reforms and positive change could be on the way for property owners. The timing, however is difficult to predict, considering that the industry have been talking about commonholds for nearly 10 years.
Want to know more about Leaseholds and how they may affect you?
If you are looking to buy a new property and want to find out more about leaseholds, freeholds and how these may affect you in the future, get in touch to speak to our friendly and knowledgeable team for help and advice. You can call us on 01264 356500 or contact us online.