UK Government Puts New System In Place For Home Owners

In January this year, the former Secretary Of State for Housing, Communities and Local Government Robert Jenrick announced plans that the government was aiming to create new legislation that would allow the owners of leasehold properties to extend their current lease by around nine hundred and ninety years with no need to pay any ground rent. This could potentially save leaseholders thousands of pounds a year and give them the security of knowing that they own the property they live in for the long term and won't be forced out on to the street any time soon.

According to Jenrick:

“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.”

Currently there are two kinds of home ownership in the UK. These are freehold ownership and leasehold ownership. If someone buys a new property as a freehold purchase, it means they will own the entire property and the land it is built on. In contrast to this, if someone buys a property on a leasehold basis, it will mean that the buyer will only own the property for a fixed amount of time and will have to sign an agreement with the landlord or freeholder in order to ensure that they can keep living there legally. Nowadays leases can be bought for up to a hundred and twenty five years before ownership of the property is returned to the freeholder. These rules may differ slightly in Northern Ireland and Scotland

As part of any lease for a property, the home owner will be required to pay a service charge which will cover the costs of any internal or external maintenance that the building may need. The leaseholder will also be required to pay for ground rent during the time that they live in the property. Owners of leasehold properties are advised to try and renew their lease as soon as possible as properties with leases of eighty years or less can prove to be much more difficult to sell on to new buyers.

Most flats are sold on a leasehold basis as are buildings which are of shared ownership. To extend a lease for a block of flats or a property of shared ownership, all the leaseholders must be in agreement as to how this is done before any renewal application can proceed. The cost of the new lease should be shared amongst all the occupants of the property i.e. leaseholders to ensure everything is done in a fair and objective way.

There can be many problems for people who buy homes on a leasehold basis. These can include them being mis-sold the terms of their lease leading them to potentially face spiralling ground rent costs. The government has now confirmed it's intention to ban the sale of houses on a leasehold basis meaning that only flats can be purchased with fixed term leases attached.

In addition to zero ground rent, the Government’s most recent proposals also include:

A cap on the ground rent which is payable when a leaseholder becomes the freeholder.

Abolishing costs such as “marriage value” – a fee based on the increase in the value of the property once the lease has been extended.

Setting more fair and transparent rates for calculating the costs of a lease extension or freehold purchase.

Introducing an online calculator for leaseholders to easily work out how much it will cost to extend their lease or buy their freehold.

Further protection for those buying leasehold retirement properties.

Many leaseholders will feel optimistic because of these new plans, however there have been some who are putting in claims for compensation as they may have been charged unjust or exorbitant amounts with little or no notice.

Leasehold campaigners are also seeking reform around existing retirement properties – since currently the proposal of zero ground rent only applies to new leasehold retirement properties – and the introduction of a “commonhold” system whereby those purchasing leasehold flats would hold the freehold to their own property but jointly own and manage their block with neighbours.

So, whilst this is clearly a promising step that has been a long time coming for the leasehold sector, some argue that there is still more work to be done to right the disparity between freehold and leasehold home ownership.