Overhaul of leasehold system could save homeowners thousands of pounds
The government is reforming the system to make it easier and cheaper for leaseholders to extend their leases.
Millions of homeowners with leasehold properties will be given a new right to extend their lease in a major shake-up that could see some households save tens of thousands of pounds.
Housing secretary Robert Jenrick has announced that people with leasehold homes in England will be given the right to extend their lease by up to 990 years at zero ground rent.
He said that the measures come as "part of the biggest reforms to English property law for 40 years, fundamentally making home ownership fairer and more secure".
Unlike a freehold property, people with a leasehold property do not own their home outright, but only have the right to live there for a set period of time, with leases typically running for between 99 and 125 years. The land on which a leasehold property sits is owned by a freeholder.
Homeowners can extend their leasehold or even buy their freehold, but the process can be complicated and expensive.
Leaseholders also have to pay annual rent – known as ground rent – to the freeholder.
Under the current law, many leaseholders face high ground rents, which the owner of the land can increase without having to provide any justification.
Why is this happening?
An estimated 4.5 million homeowners have a leasehold property.
In the past, leasehold properties tended to be restricted to flats, but there has been a growing trend among developers to sell houses on a leasehold basis as well.
A report on the issue by the Housing, Communities and Local Government Committee warned that in some cases ground rents had doubled every 10 to 15 years.
At the same time, issues relating to leases can also lengthen the time taken to buy or sell a property and increase the costs involved.
Mark Hayward, chief policy adviser at Propertymark, said: “The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses.
“This new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”
What’s changing?
Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent.
Leaseholders of flats can extend as often as they want at zero, or so-called peppercorn, ground rent for 90 years.
The new changes will mean that both leaseholders of flats and houses will be able to extend the lease on their home to a new standard term of 990 years and no longer pay any ground rent.
The government estimates the overhaul could save leaseholders thousands, and even tens of thousands, of pounds.
A Commonhold Council will also be set up to prepare homeowners and the market for the widespread take-up of commonhold as an alternative to leasehold.
A commonhold model allows homeowners to own their property on a freehold basis, with blocks of flats jointly owned and managed.
What else is happening?
An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
The government is also abolishing certain other costs associated with buying a freehold or extending a lease, while it will set the calculation rates in a bid to ensure the process is fairer, cheaper and more transparent.
It has previously been announced that ground rents on new leases on homes will be restricted to zero.
This rule will now be extended to apply to all new retirement properties.
The legislation will be brought forward in two parts. The first part, which will set future ground rents to zero, will be introduced in the upcoming session of Parliament, with the other changes, such as those relating to commonhold, brought forward in due course.
Top three takeaways
- Millions of homeowners with leasehold properties will be given a new right to extend their lease by up to 990 years
- Changes could see some households save tens of thousands of pounds
- All new retirement homes will also be sold without a ground rent
Housing market to stay open in January lockdown
People can continue to view properties and move home despite the latest lockdown measures.
The Prime Minister has announced a new national lockdown in England in a bid to control soaring coronavirus cases.
People are only allowed to leave home for limited reasons, while non-essential shops and schools must close. Similar measures have been introduced in Scotland and Northern Ireland.
The housing market will remain open, and people can continue to buy, sell, rent or let properties, as long as government guidelines are followed.
Mark Hayward, chief policy advisor at industry body Propertymark, said: “We welcome the news that the housing market is to remain open throughout this new lockdown period, but it is essential that all agents continue to play their part in reducing the spread of the virus by following all relevant guidance on how to safely conduct viewings.”
Experts suggest the new restrictions are expected to remain in place until the middle of February and will only be lifted if the pressure on hospitals improves.
Will the housing market stay open in lockdown?
Yes, the housing market will remain open. Viewing a property or moving home has been classed as one of the limited exceptions under which people are allowed to leave their home under the new guidance.
Other services required for the home buying, selling and moving process, such as solicitors, valuers, surveyors and removals firms, can also continue to operate.
But it is important to note that social distancing measures must be observed when viewing properties or moving home.
Will estate agents stay open in lockdown?
Estate agents and letting agents will remain open but members of the public will have to follow certain rules if they want to visit their offices.
For example, you may be required to make an appointment and you must wear a suitable face covering during the visit.
If you want to list your property for sale or rent, agents can still visit your home to take photographs and measurements, but social distancing measures must be followed, such as wearing a suitable face covering, keeping internal doors open and staying two metres away from people who are not part of your household.
If you or any member of your household is showing symptoms of Covid-19 or are self-isolating, estate agents and potential buyers should not visit your property in person.
Can I still view properties during lockdown?
If you are looking to buy or rent a new home, you can continue to view properties, as long as social distancing measures are followed, including wearing a suitable face covering.
Viewings can only be done by appointment and ‘open house’ viewings are not allowed.
You should wash your hands regularly or use hand sanitiser and avoid touching surfaces wherever possible. If you can, it is better not to bring children with you.
All internal doors of the property being viewed should be left open, and surfaces, such as door handles, should be cleaned after each viewing. Windows should be kept open to ensure maximum ventilation.
It is also recommended that property owners wait outside while viewings are taking place to minimise unnecessary contact.
Many estate agents will be offering online or virtual viewings in the first instance and it is recommended that people only view a property in person if they are seriously considering making an offer on it.
Similar measures apply to the viewing of show homes.
What does the new lockdown mean if I am moving home?
Home moves are allowed to go ahead but people outside of your household or support bubble should not help with the move.
Removal firms can continue to work during the latest lockdown, however, social distancing measures must be observed to help keep everyone safe.
These measures include doing as much packing as you can yourself, cleaning your belongings before removals workers arrive, keeping internal doors open and ensuring a distance of two metres is kept between you and the removers where possible.
Everyone should wash their hands regularly or use hand sanitiser and avoid touching surfaces.
You should not provide refreshments for removers, but should ensure they have access to handwashing facilities, as well as separate towels or paper towels on which to dry their hands.
You are allowed to spend a night in a hotel or other similar accommodation while you are in the process of moving home if necessary.
The government has asked people to be as flexible as possible and be prepared to delay moves if someone involved in the process needs to self-isolate or if someone in the property you are moving into has Covid-19.
Top three takeaways for moving house during lockdown:
- You can still move home. People outside your household or support bubble should not help with moving house unless absolutely necessary.
- Estate and letting agents and removals firms can continue to work. If you are looking to move, you can go to property viewings.
- Follow the national guidance on moving home safely, which includes advice on social distancing, letting fresh air in, and wearing a face coverings.
Homeownership rate falls among young people
The past decade has seen a drop in the number of people aged under 45 who live in their own home, according to the English Housing Survey.
The proportion of people aged under 45 who own their own home has fallen by more than 10% during the past decade.
Only 56% of people aged between 35 and 44 in England were owner-occupiers in 2019-2020, down from 67% 10 years earlier, according to the government’s English Housing Survey.
Younger age groups were even less likely to own a property, with only 41% of those aged between 25 and 34 living in their own home.
The drop in homeownership among younger people comes despite a raft of schemes being launched by the government in recent years to help people get on to the property ladder.
Instead, 42% of people aged between 25 and 34, and 27% of those in the 35 and 44 age group lived in the private rented sector, up from just 17% 10 years ago.
Why is this happening?
The fall in the number of younger homeowners during the past decade is likely to have been driven by changes to the mortgage market.
The majority of mortgages for people with small deposits were withdrawn during the financial crisis and were slow to be reintroduced.
At the same time, new affordability rules also made it harder for younger people on lower salaries to qualify for a mortgage.
Meanwhile, house price growth has outstripped increases to average earnings during much of the past decade, leading to increasingly stretched affordability.
Who does it affect?
Affordability constraints were reflected in the fact that only 19% of people who bought their first home last year did so on their own, with couples accounting for the majority of those who got on to the property ladder.
First-time buyers put down an average deposit of £42,433, while 62% of those buying their first home in 2019-20 had an income that put them in the top 40% of earners nationally.
Despite this fact, just under half of first-time buyers opted for a mortgage repayment term of 30 years or more, with only 4% having a term of 19 years or less.
What’s the background?
Despite the high deposits first-time buyers put down to get on to the property ladder, there was a fall in the level of support they received from the ‘bank of mum and dad’.
Around 85% of people used their own savings to fund their home purchase in 2019-20, up from 76% in 2017-18.
By contrast, only 28% received financial help from family or friends, down from 39% two years earlier.
A further 6% said they used money they had inherited for their deposit.
Top three takeaways
- The proportion of people aged under 45 who own their own home has fallen during the past decade
- Only 56% of people aged between 35 and 44 were owner-occupiers in 2019-2020, down from 67% 10 years earlier
- The drop comes despite a raft of schemes being launched by the government in recent years to help people get on to the property ladder.
Mortgage approvals reach highest levels since 2007
The scramble for property continues as buyers rush to take advantage of the stamp duty holiday.
Mortgage approvals soared to a new 13-year high in November as the property market showed no signs of slowing down.
A total of 105,000 mortgages were agreed for people purchasing a home, the highest level since August 2007, according to the Bank of England.
Approvals were up from 98,300 in October (also a 13-year high) and broke through the 100,000 barrier for the first time in 13 years.
The increase comes as lenders continue to expand on the number of mortgages available for first-time buyers.
There are currently 160 different deals available for people with a 10% deposit, up from a low of 51 in October last year, but still significantly below the 762 that were available in January 2020, according to the latest figures from Moneyfacts.
Why is this happening?
The buoyant mortgage approval figures suggest the mini boom in the housing market still has further to run.
The high level of transactions has been sparked by a combination of the stamp duty holiday on homes costing up to £500,000, alongside people re-evaluating their housing needs following lockdowns and periods of working from home.
Meanwhile, the rise in mortgage products for buyers with small deposits indicates lenders are feeling less risk-averse than they were in the early days of the coronavirus pandemic, when many of these deals were taken off the market.
Who does it affect?
The increase in mortgages for people borrowing 90% of their home’s value is good news for first-time buyers. But while the availability of these mortgages has increased, there are still very few options for people with only a 5% deposit, with just eight different 95% mortgages currently available.
Although product choice for people with a 10% deposit has increased, the cost of the deals remains significantly higher than this time last year. The average interest rate is now 3.65% for a two-year fixed rate mortgage, compared with 2.59% a year earlier, despite the Bank of England base rate falling by 0.65% during the period.
Mortgage rates are even higher for people with just a 5% deposit, averaging 4.44% on a two-year fixed rate loan, up from 3.25% in January 2020.
What’s the background?
Our data suggests the current mini housing market boom still has further to run.
Buyer demand was 33% higher in December than it was in the same month of 2019, according to our latest House Price Index.
Meanwhile, a record Boxing Day bounce saw traffic on our property search portal surge by 70.5%, considerably higher than the 61% jump seen a year earlier.
But the market is expected to start slowing down in the second quarter of this year once the stamp duty holiday ends on March 31 and unemployment rises as government support measures are withdrawn.
Top three takeaways
- Mortgage approvals for house purchases soared to a new 13-year high in November as the property market showed no signs of slowing down
- A total of 105,000 mortgages were agreed for people purchasing a property, the highest level since August 2007
- The number of mortgages available to people with a 10% deposit has increased to 160 from a low of 51 in October last year