Cast your mind back a few weeks when Michael Gove donned a clown-like spinning tie and announced that he was going to get rid of leasehold. Oh how we all laughed. Well, those of us with the briefest knowledge of English property law did. I’m sure quite a few Daily Mail readers were asking, “Why would you buy a ghastly flat anyway – home ownership should be restricted to those that can afford a charming cottage in Amersham with fast commuter links to the City.”
As everyone in property knows, although not in the same bunny-boiler league as technology, leasehold transactions are a bit of a tricky mistress. We are seeing increasing numbers of law firms refusing to do leasehold work due to recent changes from lenders, which is a bit of a problem for first time buyers, especially those who need to get a mortgage. Yes – the vast majority of them. Especially since these law firms are also refusing to do new build work, coinciding with the ending of the “Help to Buy” scheme.
Given that these buyers are the engine of the property market, does this toxic combination mean that D-Ream’s fiscal forecast of “Things can only get better” is even more of a pipe-dream than Tony Blair promised all those years ago?
What’s happened?
Proposing to get rid of leasehold is an easy win for politicians, in much the same way that had William Gladstone promised to get rid of smallpox in Victorian times, he’d have been re-elected on a landslide. Let’s face it, few people wake up one morning and think “What I really really want is to share a badly-converted Edwardian terrace with Airbnb tourists playing Spice Girls tracks all night”. However, the reality of the property market dictates that flats, and even for some poor misadvised souls, houses, are leasehold, with all the problems that go with them.
The legal issues with leasehold are broad and complex; one of the most common questions that agents ask us during our Insights training sessions is why does it seem that every leasehold transaction requires a Deed of Variation. Followed by the inevitable, and why do they take so long. Followed by, how long SHOULD they take? Followed by a deep and resigned sigh when the inevitable answer comes back as “it depends”.
The challenge is that leasehold work involves liaising with many more people; whether its managing agents, freeholders, local authorities, right the way through to Bob the Builder who installed that illegal skylight a few years ago. Given that many lawyers don’t charge the fees necessary to afford to employ the right quality of lawyer to understand the work, pity the first time buyer looking for choice.
The final straw has come with the recent changes to the Building Safety Act, which can be summarized as; if you are trying to buying a flat in a property over 5 floors or 11 metres, then, as Liam Neeson in ‘Taken’ would say, “Good luck”. If you’ve seen the film, you’ll know it didn’t end well. Which is a real problem, because if you have a walk around your town, there are a heck of a lot of these flats around.
How do we fix this?
It’s a tricky one because in much the same way the cladding issues exposed by the Grenfell Tower disaster made thousands of properties unsellable, this issue is not going to be solved overnight. If you take a look at what lawyers are saying online, apart from the usual bleating that paper is really good and technology is really really bad, then it’s not looking encouraging. Faced with significant challenges coming from mortgage lenders, increasing numbers of law firms are just saying “No. And we’re taking our ball home with us, as well”.
Which will mean that choice will be restricted to the few firms that choose to run the gauntlet, probably leading to an increase in pricing and more backlogs. This could have serious implications for chains and timescales, which are already depressingly lengthy.
Whilst there is groundswell opinion for the lenders to change their stance on these properties, this is going to take concerted effort from all sides to address. However, despite the length of time it has taken, we can take heart that the government intervened on the cladding issue, so possibly, maybe it might happen again.
We do know that hoping for help from the government is pure desperation but there’s always a chance that Michael Gove might bump into Harry Potter at Kings Cross and trades his spinning tie for a magic wand – that could work.
Peter Ambrose is founder and MD of conveyancing specialist The Partnership
D-team and Spice Girls suggest you are a harking back to a bygone era Peter.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
It was a kinder gentler time.
We had post it notes and manilla files.
People used to chat to each other on the tube.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
Taken from one point of view – there is absolutely nothing wrong with the leasehold system as it performs exactly as intended – it keeps rich landowners very nice and rich thank you very much…
And we are “entrusting” the modernisation of the system to people who have seriously vested interests in making it look like a win for leaseholders (i.e. voters) but actually delivering a win to freeholders (i.e. voters).
It’s rather like the removal of the pension cap from the last budget. All of us say “Oooh! That’s great for me, because I can save up for my old age without penalty” But the reality is that for 99% of the population there is pretty much NO way for them to ever have even got near that pension cap that’s just been removed. The only people it helped were the already rich.
And my guess is that so it will be with this round of leasehold reform.
The process will be changed to make it cheaper.
The amount payable for a lease extension will not decrease. It may even go up.
Marriage Value will be “abolished” by rebranding it – perhaps they will call it “Hope Value” instead. It might be reduced a bit, but then that could easily be dealt with by prescribing the deferment rate (used to calculate the reversionary value) in a way to compensate the freeholder for the reduction in marriage value. This could push the price to be paid UP.
A statutory extension will add 990 years to a lease, instead of just 90 as it is at the moment. But the maths means that once you get over 125 years, the cost of each year is typically less than £100 per year. Above 150 years it’s less than £10 per year. Once you get above 200 years each added year is pennies. So this is a very cheap “win”. But it will push the price UP.
Any ground rent increases will be limited to the first 50 years, rather than the full length of the original lease. But again, the most important period to consider is the next 25 years – that’s typically where the majority of the cost of paying off the ground rent comes from. And I bet that the capitalisation rate used to calculate the present value of the promise to pay ground rent will be prescribed in a way that compensates the freeholder for the fact that only the first 50 years of rent is to be considered. In some cases, particularly leases with ground rents linked to RPI (shudder!!!) this is likely to push the price UP!
So, my conclusion is that the CONservatives are likely to rush through a badly written (think introduction of Commonhold in 2002) “vote winning” piece of legislation that will be presented as a BIG WIN for leaseholders. However, after the dust has settled in a couple of years, it will end up proving to be no such thing and just make sure that freeholders are on to an even bigger winner!
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register