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.
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.”
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.”