King’s Speech: How will leaseholders benefit from new reforms?

Legislation to make it cheaper and easier for leaseholders to purchase the freehold of their property was announced today in the King’s Speech.

The King said at today’s state opening of parliament that ministers would bring forward the Leasehold Reform Bill to make improvements on the system which currently causes headaches for many homeowners.

Homeowners purchasing properties under a leasehold basis own the property but not the land.

The land on which the property is built is owned by the freeholder.

Many leaseholders pay ground rent (although this has been abolished on new properties) and they enter into a contract which states the length of time they will hold the lease.

If the lease is short, would-be buyers may be unable to get a mortgage. The cost and process of extending the lease is expensive. Leaseholders can also purchase the freehold – but the cost of involved in this is also currently high.

Therefore, reforms to make life easier and cheaper for leaseholders have been long awaited.

Today’s announcement means leaseholds on new build properties would be phased out – but this will only apply to houses and not flats, which are most commonly sold on a leasehold basis.

As well as making it easier to buy the freehold, the bill could also make it cheaper for leaseholds to extend their lease. A standard lease extension will go up to from 99 to 990 years and there will also be a consultation on capping ground rent.

Pete Mugleston, mortgage expert at www.onlinemortgageadvisor.co.uk, said these reforms outlined today by the King could have a positive impact on leaseholders in England and Wales.

“The proposed ban on new leasehold houses and the extension of lease terms to 990 years with ground rent reduced to £0 are substantial steps towards providing more secure and affordable homeownership,” he said.

“The pledge to tackle excessive service charges and expensive ground rents is commendable and addresses a long-standing issue that has burdened many homeowners.

“The proposed transparency in service charges and expanded access to redress schemes will provide much needed protection for leaseholders.

“Before we get too far ahead of ourselves, it’s crucial to assess whether these measures go far enough. While the reforms are a step in the right direction, it’s important to monitor their implementation to ensure they effectively alleviate the challenges faced by leaseholders.”

What about flats?

One of the main criticisms of the proposed reforms is the phasing out of leasehold rules on new build properties applied only to houses and not flats.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “While we welcome a ban on new leasehold houses, it is disappointing that flats are not included in the legislation, as we wanted to see new and existing flats and houses included.

“Indeed, flat owners and those considering buying flats are looking for change as much as those purchasing houses, particularly given that flat owners often also have cladding issues to contend with. It’s no surprise that many are thoroughly fed up with everything.”

Ground rent

Paula Higgins, chief executive of the HomeOwners Alliance, meanwhile, was disappointed ground rents were not tackled directly.

“This is a complex area so we welcome the opportunity to consult to find the right solution,” she added. “Ground rents have already been abolished for new homes; so it is crucial for these rents to be capped or abolished for the five million existing leasehold homes.

“Leaseholders will benefit by reducing the annual cost and making it cheaper to extend.  It’s not right that leaseholders are forced to make these artificial payments and receive no service or benefit in return.”

She said the other major concern about the Bill was Parliamentary time. “With over 20 Bills announced today, we need to see a draft Bill by Christmas – otherwise these reforms remain fiction and leaseholders continue to suffer.

“Leasehold reforms could be a significant legacy left by this government to improve the quality and equity of homeownership across the UK. Let’s hope the government has the courage to see it through.”