An End To The Scandal For 17,000 Medway Leaseholders

As the national lockdown continues, many landlords have been finding it a challenge to circumvent the challenges of operating in a safe manner whilst also keeping their properties occupied.

It certainly remains a challenging time, however amongst all of this doom and gloom, is some excellent news for leaseholders, as the Government has vowed to end the complex associated costs that leaseholders face. We have been looking into this and it really is good news!

According to figures from 2018, there are an estimated 1.4 million leasehold houses in the UK and according to data published by Kent Online, Medway has around 17,000 leasehold properties. We are am awaiting data from the Land Registry as to exact leasehold statistics, so this will be interesting to see!

The leasehold scandal is something that has plagued homeowners for decades, so what are the changes proposed, when will they come into force and what will the effect be for Medway landlords?

Abolition Of Ground Rents

As well as eye-watering fees to extend their lease, the majority of leaseholders face high ground rents which, combined with a mortgage, can make it feel like they are paying rent on a property they own! In addition to this, freeholders can also increase ground rents with little or no benefit to the leaseholder.

Under the new proposals, leaseholders will have the opportunity to extend their lease for a total of 990 years with zero ground rent. This is brilliant news as under current rules, leases on houses can only be extended for 50 years once and a ground rent must be paid, and flat owners can extend multiple times with a peppercorn rent for 90 years.

This legislation around ground rents is something that the Government is hoping to bring in during this current session of parliament and it could save each leaseholder literally tens of thousands of pounds (whilst leaving the freeholder worse off)!

Abolition Of The Marriage Value

In addition to the abolition of ground rents, proposals outline a reform to the marriage value and replace it with a calculation to ensure it is fairer, cheaper, and more transparent.

The marriage value is simply the increase in value of the property following completion of a lease extension, reflecting the additional market value of a longer lease.

The marriage value is deemed as the increase in value following completion of a lease extension and this potential ‘profit’ must currently be shared equally between the freeholder and the leaseholder.

Using figures directly from the Lease Advice Service, this could be illustrated as the below:

Current lease

Leaseholder’s present interest    = £150,000

Plus landlord’s present interest  = £6,600

= £156,600

Extended lease

Leaseholder’s new interest          = £165,000

plus landlord’s new interest         = £74

= £165,074

The marriage value is therefore £165,074 minus £156,600 = £8,474

With the 50:50 split between the freeholder and leaseholder; the leaseholder would be required to pay half of the figure (£4,237 in this example) as well as the reduction in the freeholder’s interest.

This really is another positive step as it will mean that leaseholders looking to extend the term of their lease would save a considerable sum. As with the change to ground rents, however, it will leave the freeholder worse off.

Replacing Leasehold With Commonhold

As well as the two points above, proposals include developing ‘commonhold’ as an alternative to leasehold for blocks of flats. This would be where flat owners held the freehold to their property, but the blocks themselves were jointly owned and managed.

This is something which is fairly common in other countries. We think that is fantastic and probably lead to a wide take-up, as it will provide a lot more certainty and flexibility for property owners, including landlords, who purchase a flat as part of their portfolio.

We know that you will agree with this being a positive step for leaseholders and it is something we will be watching very closely! It could certainly be interesting as the negative impact for freeholders could result in leaseholders seeking to sell or change their business model entirely!

We would really like to hear from you about what changes these proposals will make (if any) to your investment strategy. You can read the full proposals on the website.

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