Insights

Leasehold reforms could boost property prices by a significant amount

Leasehold reforms could increase property prices, the announcement, during the King’s speech, could make a huge difference in this area of the property market.

What is a leasehold?

A leasehold is a form of property ownership where a person holds the right to use and occupy a property for a specified period of time, subject to the terms and conditions outlined in a lease agreement.

Leasehold arrangements are common in real estate, particularly for residential and commercial properties. The lease agreement typically specifies the duration of the lease (lease term), the amount of rent to be paid, and various rights and responsibilities of both the landlord and tenant. At the end of the lease term, the property reverts to the landlord unless the lease is renewed.

It’s important to note that leasehold ownership is distinct from freehold ownership. In a freehold arrangement, the property owner has outright ownership of both the land and any structures on it, with no time limit on ownership. Leasehold ownership, on the other hand, involves a time-limited right to use and occupy the property.

Leasehold reforms

Government plans to reform and simplify leasehold could see property prices in some areas pushed up by as much as 10%, a major new study claims.

During the recent King’s Speech the Government announced it will become the norm to statutorily extend leases to 990 years.

If the government abolishes leasehold marriage values the cost of short leasehold stock could increase by 9.9%, according to a study from Bayes Business School (formerly Cass) and global property consultancy Knight Frank.

Dr James Culley, Partner and Data Science Lead at Knight Frank, said: “The current leasehold enfranchisement process appears complicated and an unnecessary headache for any leaseholder needing to go through it. For those reasons, the government proposals are laudable in their intentions to make the undertaking less complicated and cheaper for the leaseholder. “Unfortunately, as they stand the proposals also come with large unforeseen consequences regarding affordability and pricing within the leasehold market. For instance, whilst an uplift in value for current leaseholders may be a positive thing, a large number of properties affected are in the private rented sector in low-income areas.”

Significant rise

Dr Mark Andrew, Senior Lecturer in the Faculty of Finance at Bayes Business School, said: “Our study has found that the Government’s plans to extend lease length and abolish marriage value could lead to a significant rise in the cost of purchasing a leasehold dwelling.

“Since the premium is much reduced by the proposed extension plans, it is logical to expect that a significant number of short leaseholders will extend their lease. Based on the assumption all short leaseholds are extended, the projected cumulative impact on the national leasehold market is a rise in prices by 3.2%.

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