The Government will make it cheaper and easier for rented property owners to buy freehold of their properties, according to a speech by the King in Parliament today.
King Charles III also announced that new reforms will be introduced to help end the exploitation of millions of tenants through punitive service charges.
Other fraudulent charges to tenants are also expected to be included as part of a bill to reform the leasing system.
This will include capping existing ground rents to ensure tenants are protected from making payments that require no benefit or service in return and which could cause problems when owners want to sell the home.
King Charles III announced that reforms will be introduced to help end the exploitation of millions of tenants who are subject to punitive service charges.
The plans are also expected to include provisions to allow more tenants to extend their lease, increasing the standard lease extension term from 90 years to 990 years.
The changes could make it easier for people to sell and remortgage rented homes.
It is also proposed to ban the creation of new leasehold homes in England and Wales, although flats would continue to be sold on a leasehold basis under the plans.
It will mean that, barring exceptional circumstances, new homes in England and Wales will be freehold from the start.
What are the Government’s new leasing reforms?
Timothy Douglas, head of policy and campaigns at estate agent membership body Propertymark, said: ‘Many tenants will be relieved to hear of plans for new legislation to further reform the lettings system.
‘However, the UK Government must ensure that any legislation to abolish tenancies is fit for purpose.
‘There are no reports yet that have confirmed the impact that capping ground rents will have on service charges, and it is important to consider that each development is individual, and some may still require aspects to justify specific service charges.
‘As each development will likely have unique features by design, sensible provisions may be needed and certain clauses or exemptions where an ongoing management fee might be appropriate.
“There may well be community aspects of a development design where a management position may still be relevant to the maintenance of an area, for example.”
The Government will make it cheaper and easier for tenants to purchase their property, according to the King’s speech today in Parliament
Jeremy Leaf, a north London estate agent and former residential chair of the Royal Institution of Chartered Surveyors, suggested that proposals to ban new leasehold homes do not go far enough.
“While we welcome the ban on new leased homes, it is disappointing that flats are not included in the legislation as we wanted new and existing flats and houses to be included,” he said.
‘Homeowners and those considering buying a home are looking for changes just as much as homebuyers, especially since homeowners often have to deal with siding issues as well.
“No wonder many are fed up with it all.”
Mark Wilson, managing director of specialist lettings inspectors Myleasehold and member of the Association of Leasehold Law Professionals, He questioned how easy it would be to implement the changes.
“It is essential that the Government approaches potential reforms cautiously,” Wilson said.
‘Apart from the easy victory of changing the lease terms from 90 to 990 years, the proposed content, as we know it to date, is random and confusing and this is exacerbated by the fact that the lease is an emotive issue.
“With so many moving parts and so much regulation already in place, including the administrative chaos of the Construction Safety Act, I am concerned about the ability to implement any meaningful reform within the time left in this Parliament.”
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Per hundreds: The average ground rent is between £200 and £500 a year, according to Tayntons Solicitors
There are also suggestions that the Government is proposing to cap all existing ground rents at a minimum interest rate.
The Leasehold Reform (Ground Rent) Act banned the charging of ground rent on new leases for homes purchased after June 30, 2022. However, it does not yet apply to existing leases.
If leasehold ground rents are changed to a ‘peppercorn rent’, in practice it will mean that landowners will no longer pay any ground rent to the landlord.
Mark Chick, director of the Association of Leasehold Enfranchisement Practitioners, says the changes will reallocate wealth from landlords to tenants.
Currently, most leases are subject to much higher ground rents. According to Tayntons Solicitors, the average is between £200 and £500 per year.
This is one of the areas where greater consideration to detail is required, according to ALEP members.
Mark Chick, director of ALEP and partner at Bishop & Sewell Solicitors, said: “We anticipate this will mean a limit on the level of ground rent that can be charged, perhaps by reference to a fraction of the capital value of the property. .
‘While there are clear benefits to doing so, particularly for tenants with high or uncertain ground rents, this could substantially reallocate wealth from landlords to tenants.
‘I wonder whether the Government has fully considered the implications for private pensions, for example, many of which have a considerable investment in land rents.
“The political implications of this, specifically among the prime minister’s own party, could be considerable.”
What are leasehold and freehold properties?
In the UK, homes are bought freehold or leasehold. When you buy a freehold property, it means that you own the property and the land it is built on indefinitely. This is the most common way to buy a house in the UK.
However, with a leasehold purchase you only own the property for a set period, but not the land on which it is built. The owner of the land remains the absolute owner. This arrangement is more common in apartments, but you can get houses on a lease basis.
The lease that is purchased is usually long, usually between 99 and 999 years. Banks generally provide mortgages as long as the lease has 75 years remaining, but once the lease drops below 70 years it can be more difficult to sell or remortgage the property.
Landlords can also impose restrictions on what leaseholders can do with the property.
Tenants pay ground rent, plus service charges to help cover the landlord’s liability for shared areas such as corridors or a garden.
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