Is it the end for the leasehold scandal?
The leasehold reform: why is it so important?
Over the last decade, there has been a lot of talk in the press about leasehold flats and homes that had been sold with clauses that meant unnecessary and unfair expenses. Some clauses meant freeholders would increase ground rent dramatically, including doubling every 10 years. For some homeowners, these costs increased so much they struggled to sell their property.
Housing Secretary Robert Jenrick 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 homeownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.”
What does the reform involve?
The reform will provide leaseholders the option to extend their lease by a maximum term of 990 years at zero ground rent. Leaseholders of houses have only been able to extend their lease for 50 years once and pay ground rent. Flat owners have been able to do this multiple times with a peppercorn ground rent rate for 90 years. Additionally, leaseholders have often faced expensive charges to extend their lease. However, this will change, including getting rid of certain costs.
There will also be a cap on ground rent payable after a leaseholder extends the lease or buys the freehold. An online calculator will make it easier for leaseholders to find out how much it will cost to do either.
What will happen going forward?
The government is establishing a Commonhold Council, which will be a partnership of leasehold groups, industry, and the government. The council will prepare homebuyers and the property market with the take up of commonhold ownership for new-builds.
This ownership model is common around the world. However, in England and Wales, fewer than 20 developments have used this model that allows homeowners to own their property on a freehold basis. Apartment blocks will have joint ownership and management. This means when buying a house or flat, the homebuyer truly owns it and has greater control over homeownership costs.
What are the benefits for homeowners?
Many homeowners will directly benefit from this leasehold reform with 4.5 million saving up to tens of thousands of pounds. Plus, it will allow leaseholders to buy a freehold more cheaply. This leads to lower homeownership costs and more straightforward transactions when buying or selling a property.
Furthermore, it could make more homebuyers open to buying properties with shorter leases. And this could in turn lead to fewer properties sitting empty with short leases or high ground rents in place.
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