Today’s measures come as part of the biggest reforms to English property law for 40 years, fundamentally making home ownership fairer and more secure.
Under the current law many people face high ground rents, which combined with a mortgage, causes major difficulties. Many of these properties are unsaleable. Most mortgage lenders are unwilling to lend on higher ground rents and buyers are being advised against proceeding by lawyers, leaving the homeowner effectively trapped.
Today’s proposals will mean that any leaseholder who chooses to extend their lease on their home will not only secure a healthy long lease but will no longer pay any ground rent to the freeholder, therefore resolving any high ground rent issues. Those leases extended under the proposed scheme will be amended to a zero rent.
Currently leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.
A premium will still be payable for the lease extension or purchase of freehold but the government is also proposing abolishing prohibitive costs like ‘marriage value’ and instead creating the calculation rates to ensure this is fairer, cheaper and more transparent. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
Housing Secretary Rt Hon Robert Jenrick MP said:
“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.
We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.
These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether”.
What about if my property is a house not a flat?
Today’s proposed changes mean when the changes are made both house and flat owners will be able to extend their lease to a new standard 990 years with a ground rent at zero.
There has long been talk of Commonhold- a different form of ownership of property to any currently in existence. The government has confirmed they are now establishing a Commonhold Council - a partnership of leasehold groups, industry and government - that will prepare homeowners and the market for the widespread take-up of Commonhold.
Commonhold allows homeowners to own their property on a freehold basis, giving them greater control over the costs of home ownership. Blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too. The arrangement is similar to leaseholders who have already bought out their freehold collectively in a resident run management company and is likely to be much more appealing to buyers and lenders alike.
There are also to be changes to ground rents on retirement properties. There is already a commitment that all new leases should have zero ground rents but this will also now apply to retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners.
Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.
When will these changes be made?
There have been calls for these changes fore some years now but according to the Government, legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in Parliament. As soon as we have any further news on this we shall update you.
In the meantime if you have any leasehold queries please do not hesitate to contact Sharon Ingram, Partner Residential Property on 01905 726789.