The government has previously pledged to abolish leasehold, though recent media reports suggest these plans have been abandoned over concerns about whether there would be enough time to enact the changes before the next election.
Brokers were united in decrying the leasehold system, arguing it leads to homeowners being “exploited”. However, views were split on how to go about fixing the issue.
Leasehold is a mess
James McGregor, director of Mesa Financial, said that the leasehold system was “a mess” which needed to be scrapped. He suggested that plans to abolish it had been dropped because for this government “now the writing is on the wall” ahead of the next election.
He continued: “It is an easy fix, every freehold becomes a share of freehold and the people that live in the buildings become the ultimate owners. They all then have to contribute to the upkeep of the building they own.”
Replace leasehold properly
The Conservatives have been guilty of a lack of direction or long-term planning when it comes to housing, according to Dominik Lipnicki, director of Your Mortgage Decisions, who pointed to the fact there have been 15 housing ministers since the party took power and said that given this it was unsurprising they have scrapped plans to deal with leasehold.
He continued: “There is clearly not enough protection for the leaseholder, and many do not understand how the system works. Just to do away with the system will not work, a modern day replacement is needed, as some properties such as flats cannot be owned on a freehold basis.”
Too many “ad-hoc changes” over the years have made leasehold a “legal minefield”, meaning the system needs a complete rewrite, argued Justin Moy, managing director of EHF Mortgages.
Moy argued that all leases should be “typically 999 years from the start”, which would remove the expense of extending leases and the worry that lenders will reject the property. He also suggested that the government should “unravel” escalating cost clauses for things like ground rent and service charges.
Exploiting leaseholders
Richard Dana, co-founder and CEO of Tembo Money, said that leasehold had been “exploited” to the detriment of certain homeowners in recent years.
He continued: “Abolishing leasehold and moving to more of a commonhold system is one option – but it is pretty radical and will likely take time to implement and needs to be very carefully thought through. As we have seen from other changes – they can actually end up making the overall situation worse and could result in less investment in the supply-side of the housing market.”
Dana noted that he had had clients who were unable to sell their leasehold properties due to cladding, and disagreements over who was to foot the bill for putting things right. He also noted there were general issues with management companies not being held to account for poor service.
“There are certainly improvements that can be made to the existing leaseholder rules – such as enabling leaseholders to extend to 999 years and having a very clearly defined lease extension valuation calculator. Addressing the issues of ground rent is also really important and enabling leaseholders to extend their leases at zero ground rent could be one option,” he concluded.
Make lease renewals automatic
Bob Singh, founder of Chess Mortgages, said that leaseholders often “pay through the nose” to live in their own homes on “disadvantageous terms”.
He suggested that the main changes needed were to make lease renewals automatic and perpetual, as well as giving tenants a choice of management companies to administer the block.
He continued: “Commonhold should be the only new tenure available on new build flats or conversions where the lease is say 999 years and peppercorn rent. The freehold interest should not accrue a value as the lease shortens.
“Owners with short leases are effectively prisoners in their properties if they don’t have the means to extend their lease or extend their mortgages.”
What can brokers do?
McGregor argued that while it is the responsibility of brokers to discuss leaseholds with clients, ultimately it is down to solicitors to look out for “risky lease arrangements”.
Lipnicki said: “All good mortgage advisors will ensure that borrowers understand what being a leaseholder entails and the costs associated with the system.”
Moy said that he normally gives clients a general idea of the differences between freehold and leasehold, and ask about the monthly costs involved with the property since that will impact the overall affordability calculation.
He echoed calls for solicitors to do a better job on leasehold, suggesting they should “be more specific about the property in hand and cover the legal requirement, covenants, etc”.
