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Millions of leasehold homeowners and potential buyers could save hundreds, maybe even thousands of pounds, due to Labour’s new legislation, which will get rid of leasehold homeownership once and for all in England and Wales.
Labour has announced historic reforms to leasehold homeownership How will leasehold reform affect house prices? What will Labour’s leasehold reforms mean for homeowners?It looked dicey for a moment, but Labour’s long-awaited and slightly overdue draft Leasehold and Commonhold Reform Bill is here.
It was years in the making and, at one point in December, I reported it looked like it might not see the light of day due to wrangling between the Prime Minister, Sir Keir Starmer and the Chancellor, Rachel Reeves, over whether the Government should side with millions of leasehold homeowners, or investor freeholder landlords.
Former deputy prime minister, Angela Rayner, stepped in, urging the Government to honour their election promises to end leasehold, and as many as 80 backbench MPs threatened to rebel behind her.
And then, the announcement came.
Campaigners may be disappointed because what Labour has managed to announce finds something of a middle ground.
Standing before the House of Commons, housing and planning minister, Matthew Pennycook, assured MPs that his bill was “the beginning of the end for leasehold”.
So, what exactly has been announced?
Ground rents will be capped and eventually phased out
As well as paying mortgages and service charges, many leasehold homeowners pay ground rent that can suddenly shoot up because their lease contains onerous clauses saying their freeholder can double it every 10 years.
Labour’s bill promises to cap all ground rents at £250 a year. This is something that the Tories had already done for people who bought leasehold homes from 2022 onwards (the Ground Rent Act 2022). Labour will apply that cap to all leasehold homes.
And, then after 40 years, that will be cut to what’s called “a peppercorn rent” – that means £0.
Campaigners such as the National Leasehold Campaign (NLC) had hoped that Labour would go straight to a peppercorn but, in his statement, Pennycook argued that this was the right approach to ensure there was no cliff edge for freeholders.
This morning, I interviewed a 34-year-old woman called Frances who owns a one-bedroom leasehold flat in Worthing, on England’s south coast. She said her ground rent was £500 a year when she bought her home. It’s now £3,000. She can’t afford to pay this and wants to sell, but nobody will buy her home because of the ground rent.
She welcomed Labour’s changes.
When will this all happen?
It takes around two years for legislation to make its way through Parliament so, unfortunately for people like Frances, these changes won’t kick in until 2028 at the earliest.
Frances, who is currently trying to sell her flat because she now has a partner and has moved to Australia to live with him, says that “doesn’t help” her because she needs to “sell now” so she can pay for her wedding and release equity to buy a new home.
Sadly, lots of people are similarly stuck.
New leasehold flats will be banned
The Tories banned new houses from being sold as leasehold in 2022. However, they did nothing to stop developers from selling flats as leasehold.
Under Labour’s new reforms, in future, developers will no longer be allowed to sell new flats as leasehold (except in very limited cases).
This is a major change, which means leasehold/freehold homeownership will eventually be phased out.
Instead, new flats will be built as commonhold.
What is commonhold?
Unlike leasehold homeownership, which means homeowners only buy the right to occupy their home for a specified period of time; commonhold means that people own their home and the building it is in, if it is a flat without an expiry date on their lease.
Scotland has had a commonhold system since 2012. Commonhold has worked well in Australia, New Zealand, much of Europe and North America so there’s no reason to assume that it won’t work in England and Wales.
Commonhold means homeowners have a say over spending and repairs in their building; it also means they own their home outright.
Labour says existing leaseholders will also get the right to switch to commonhold. So, freeholder landlords could soon well and truly be a thing of the past.
The end of ‘forfeiture’
This is a historic rule, which means leaseholders can have their home taken away by their freeholder if they break their lease or fall behind on their charges. There have been reports of freeholders trying to take people’s homes away because they owe as little as £350 in fees.
Labour says this is unfair, so it is scrapping forfeiture. Instead, it wants to bring in a new court-led process with strict safeguards for disputes.
What about service charges?
Leasehold has been particularly heavily criticised because homeowners pay their mortgages, ground rent and, often, a service charge too. Particularly if they live in a block of flats. As I’ve reported, service charge bills can be extortionate, and freeholders too often offer little transparency as to why they are so high.
Labour has said its reforms will make service charge bills clearer and make it easier for homeowners to challenge them if something looks wrong.
Will Labour’s leasehold reforms affect house prices?
The million-dollar question (sorry). Yesterday, freeholders wrote to the Government arguing that reforms could damage the housing market and make it difficult for them to continue running buildings. They made similar arguments to the previous Conservative government who ultimately rejected them.
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And, as I’ve written in my column recently, housing experts like analyst Neal Hudson argue that leasehold has actually slowed Britain’s housing market down and caused prices of leasehold homes to fall because people don’t want to buy homes with onerous clauses in their leases and expensive ground rents.
So, there’s every chance that Labour’s pledges could actually make leasehold homes easier to sell and, therefore, worth more. But only time will tell on that.
Housing Crisis Watch
In case you missed it, last week I reported that the Mayor of London, Sir Sadiq Khan, is planning to make money available for 6,000 new rent-controlled homes for key workers. Read all about it here.
What I’ve been reading and listening to…
I can’t explain it, but, honestly, I’ve been listening to a lot of Whitney Houston lately. Make of that what you will. I really enjoyed this fascinating long read by fellow housing journalist Peter Apps in the FT Weekend, in which he argues that slow house price growth might actually be a good thing for Britain’s economy.Hence then, the article about from house prices to service charges how major reform saves leaseholders money was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
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