Leasehold reforms to hand homeowners a £50k windfall

Proposed reforms that would overhaul property law could bring windfall £50,000 house price jumps for leaseholders. Research by consultancy Capital Economics found that plans to change the leasehold system would save homeowners tens of thousands of pounds and boost house prices.

The Government reforms include plans to abolish onerous ground rents and extra charges to extend a lease after it passes 80 years, known as “marriage value”. If these planned changes are enacted, leasehold homes sold with a short lease could rise in value, while the cost of extending leases for existing homeowners would fall.

Andrew Wishart, of Capital Economics, said: “Were these planned reforms to go through as the Government has initially laid out, I think the value of leasehold properties would go up by roughly the amount of the savings [of extending the lease], if not a little bit more.”

Leaseholders who have contracts with onerous ground rents – namely those that cost more than 0.1pc of the property’s value, or which continually increase – will benefit most.

Capital Economics based its calculations on a £250,000 flat on a 250-year lease where the ground rent starts at £100 a year and doubles every decade for the first 50 years of the lease.

Under the current rules, if a leaseholder had 125 years left and wanted to pay for a 990-year lease extension, this would cost £ 54,000. If, under the proposed rules, the ground rent was capped at 0.1pc or £250 per year, the cost of extending the lease would plummet to £4,920. The leaseholder would pay £49,080 less.

When a property has fewer than 80 years left on its lease, the leaseholder must also pay a fee of half of the property’s marriage value –

‘Ministers have proposed things before and then not followed through’

that of holding both the leasehold and freehold together.

Marriage value means that, after a lease’s length drops below 80 years, the costs of purchasing the freehold accelerate fast.

With 81 years on the lease of a £250,000 flat with £100 annual ground rent, it would cost £7,479 to purchase the freehold. Once the lease drops to 80 years, that figure doubles to £15,750.

Abolishing marriage value would stop these costs escalating at such a pace: purchasing the freehold with 80 years on the lease would cost £7,995 less. At 30 years, the policy would save the leaseholder nearly £30,000.

For now, owners are in limbo. Paula Higgins of HomeOwners Alliance, a property website, said: “Everyone who was extending their leasehold is stopping.” David Wadsworth, of JMW Solicitors, added: “We don’t know how much things will change or when. The Government has proposed things before and not followed through.”