Leasehold plan to inflate property prices by 10% says Knight Frank
Reforms set out in the King’s Speech would give leaseholders the right to extend the lease to 990 years but would have unforseen consequences says new report.
Government plans to reform and simplify leasehold could see property prices in some areas pushed up by as much as 10%, a major new study claims.
In the King’s Speech the Government announced it will become the norm to statutorily extend leases to 990 years but stopped short of specifically saying they would abolish marriage value.
FOLLOW THROUGH
But if they do follow through it could result in an average price increase of 9.9% for short leasehold stock, a new study from Bayes Business School (formerly Cass) and Knight Frank reveals.
Published by the UK Collaborative Centre for Housing Evidence (CaCHE), the findings of the study contradict the Government’s current policies on promoting housing affordability and levelling up.
Dr James Culley, Partner and Data Science Lead at Knight Frank, says: “The current leasehold enfranchisement process appears complicated and an unnecessary headache for any leaseholder needing to go through it.
“Unfortunately, as they stand the proposals also come with large unforeseen consequences regarding affordability and pricing within the leasehold market.
“For instance, whilst an uplift in value for current leaseholders may be a positive thing, a large number of properties affected are in the private rented sector in low-income areas.”
STABILITY
And Jeremy Dharmasena, Partner and Head of Leasehold Reform & Litigation at Knight Frank, adds: “The changes will provide tenants with a sense of stability, ensuring certainty and enhancing the marketability of their properties, which can be seen as a positive step in the right direction.
“However, I’d caution against retroactively capping ground rents, as it will have a significant impact on pension funds and existing contracts, due to a loss of rental income.
“Abolishing marriage value will inevitably create further challenges including legal concerns and homeowner affordability.
“Whilst reducing premiums may seem beneficial, it will lead to a decrease in Stamp Duty Land Tax revenue.”
And Dr Mark Andrew, Senior Lecturer in the Faculty of Finance at Bayes Business School, says: “Our study has found that the Government’s plans to extend lease length and abolish marriage value could lead to a significant rise in the cost of purchasing a leasehold dwelling.”
I’ve been in London Property since 1976 and a very simple solution is to automatically extend all Residential Flat Leases to 999 years for Free with a zero Peppercorn Ground Rent . That automatically brings Flats in line with Freehold houses .
Complete & utter nonsense! While properties with short terms remaining on their leases ( less than 50 years ) may see an understandable & justified increase in value by making them mortgageable again, residential leaseholders will finally be freed from the punitive rip off expenses they are currently forced to suffer & the future of their highly expensive investment will, at long last be protected. Now is the time to finally & permanently derail this medieval gravy train & give Leasehold the same status as Freehold by changing every single one to Commonhold. The only objectors are the ‘fat cat’ vested interests who unfortunately seem to hold sway with certain politicians.
What an unbelievably negative reaction. The current system in just not right. Costs for an average lease extension are now over £3000 with unnecessary survey costs in most instances and solicitors charging far too much for what should be a simple matter. Stamp duty would increase due to the amount of leases being extended and increase in values of property. There needs to be a simple equation for valuing the extension and ground rents should be capped at £250 for the purpose of values as they have been surreptitiously slipped in the back door of most leases with increases becoming out of hand. Lenders then need to make the purchase process simple to be able to buy a leasehold property with a lease extension at the same time. The process could be done in a week. Government needs to put a simple leasehold extension calculator on their website which everyone abides by. Common sense must dictate here without greed. Lower value rental properties will have low value lease extensions. Nobody should be forced to extend their lease until the point of sale and even then their should be an opt out option for a buyer (not seller) if they want to buy a low lease for cash.