How Leasehold Should Work

Leasehold is a unique feature of the English and Welsh property markets and up to a point it makes a certain degree of sense. For example, the fabric of a block of flats may need to be managed as a single entity, even though each of the flats themselves may have a different owner. For similar reasons there may be some logic to having a leasehold arrangement for terraced and even semi-detached homes. Currently in the UK, however, even detached homes are being sold on a leasehold basis. What’s more, the manner in which some leaseholds are being run is so archaic and feudal that it would be fair to call it a national scandal.

The history of leasehold

Although the basic leasehold system dates back, literally, hundreds of years to the Medieval feudal system, the modern concept of leasehold effectively started in the 1920s. It basically allowed landowners to rent out their land for very long periods, thus guaranteeing themselves an income from it regardless of changing circumstances. It really took off in the 1950s as the population grew and housing developments increasingly focused on flats, which could contain more housing units in less ground space. In the 1960s, however, the shortcomings of modern leasehold began to become apparent as elderly tenants started facing eviction as their leaseholds came to an end. Since then the problems with leasehold have only been getting worse.

Leasehold in 2017

The National Leasehold Survey 2016 revealed that 57% of leaseholders agreed with the statement “I regret purchasing a leasehold property”. In other words, less than half of leaseholders surveyed are happy with their situation. Looking at stories featured in the press, much of this discontent seems to stem from home builders selling on freeholds to third parties, who then increase ground rent charges in a way which is completely unrelated to either inflation or the cost of the services they provide (if any). Some home owners have complained that the freehold to their properties was sold on without their knowledge or that when they tried to buy the freehold, they were quoted a completely unrealistic price for it. Some home owners have even been advised that their leasehold situation effectively makes their homes impossible to sell as mortgage lenders will not lend against homes with what they perceive to be excessive rent review clauses. Others have complained that even minor changes to their homes trigger extortionate fees from their freeholders. While the push towards creating more new-build homes is desirable for many reasons, it does mean that more people are going to find themselves dealing with leaseholds for the first time and that means that the scope for discontent is even higher than it is now – a fact, which has been noticed by parliament with housing minister Gavin Barwell calling the current leasehold system a “widespread problem that needs addressing”.

Looking North for alternatives

In Scotland, leasehold properties are the very occasional exception rather than the rule. The issues surrounding management of the fabric of buildings such as flats and other communal areas such as gardens are addressed by means of what are called Deeds of Conditions. Often, these deeds of conditions will involve the use of what is known as “factoring services” to carry out maintenance duties. Although this system is still far from perfect in that home owners can be left dissatisfied with the way the factoring company performs its services (or not as the case might be), it does resolve a number of the issues related to the leasehold system in England and Wales. It is also entirely possible that the Scottish government will heed calls to review the way the factoring system operates to address some of the concerns raised.

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South East Asking Prices Outpace London

Asking prices in the South East region grew by 10 per cent in the year to October, outpacing London as the fastest growing region across England and Wales, says Rightmove.

According to the online estate agent’s monthly index, the average asking price of property coming to market in the South East reached £355,874 in October, up from £323,546 a year earlier.

In comparison, asking prices in London hit £596,692 this month, rising 9.6 per cent from £544,232 in October 2013.

Across England and Wales, asking prices rose 7.6 per cent from £252,480 in October 2013 to £271,669 this month.

Rightmove director and housing market analyst Miles Shipside says: “The ripple effect of buyers priced out of London combined with those cashing in and moving out of the capital means that the South East has taken London’s boom-town crown.

“Upwards price pressure is being further fuelled by a reluctance of homeowners in the hotspots of the South East to come to market. Some can see the value in holding onto their fast-appreciating property asset, whilst others cannot find anything else for sale locally on the market that tempts them to sell and move on.”

Legal & General Mortgage Club director Jeremy Duncombe says: “While house prices continue to rise, the pace appears to have slowed down. With increases of 7.6 per cent over the past year a cooling off period of sensible growth may be just what the market needs in London and the South in particular. For housing to be affordable, any property price increases need to be closer to the rate of inflation, otherwise the majority of people risk being frozen out of the market in the long-term.

”Fundamentally we suffer with a severe shortage of housing supply in the UK. However, the good news is this issue seems to be prominent on the political agenda. The government and the industry need to work hand in hand to tackle the problem and to ensure the UK housing market is sustainable and stable in the long-term.”


Source: Mortgage Strategy Magazine

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