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Leasehold reforms will be good and bad news for the industry

Auctions chief says leasehold reform will free up the housing market but many vendors may wait until they go live to sell their homes.

Stuart Collar-Brown, Director & Co-founder, MyAuction

stuart myauction leasehold

The leasehold reforms proposed in 2021 will add a lot more legal and financial flexibility to leasehold homeowners by increasing the statutory lease extension term for flats from 90 years to an additional 990 years at a peppercorn ground rent across all properties.

Historically, most high street lenders won’t provide a long-term mortgage for leases under 60 years, but the new extension term of 990 years provides leasehold-homeowners with confidence that they will be able to sell their property at a fair price when the time comes.

The abolishment of Marriage Value will also allow homeowners to extend their lease at a potentially lower premium than they can now.

Upsides

Marriage Value increases exponentially the shorter the remaining term on the lease so this is especially poignant for leaseholders with shorter remaining terms.

The legislation reforms will also empower owners of retirement properties to negotiate new favourable lease terms with peace-of-mind knowing that annual ground rent fees will not be due.

Likewise, leaseholders in blocks of flats can band together more easily to form a commonhold and regain control of their building.

The proposed changes to the leasehold structure are long overdue and will be hugely beneficial for many homeowners.

In fact, we’re already seeing homebuilders offering 999 year leases with lower ground rents on new developments, illustrating a further positive consequence of these reforms for new homeowners.

Downsides

But there are other immediate factors to consider. For example, homeowners who would be extending their leases now might be more inclined to wait until these reforms are made official. This could slow down sales for these units in the market which would impact the wider property market.

But overall looking forward, if passed, the reforms are going to be a giant step forward for current leasehold-homeowners, but for now we must wait and see.

Stuart Collar-Brown is a director and co-founder of MyAuction.

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