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Leasehold Ban with New 2019 Regulations

Image of a piece of torn paper reading Leasehold

‘Leasehold ban’ likely to come into effect with new regulations in 2019

In a recent post we looked at some new letting and property management regulations coming onto force, and one specific issue that we wanted to delve a little deeper into is the leasehold ban coming into effect in 2019.

While it’s not a complete blanket ban, the new leasehold regulations will certainly shake up the industry – with some commentators worrying that while it may benefit leaseholders, it could simultaneously create new problems of its own.

It’s always difficult to predict the exact outcome of any regulatory changes, but here we’ll take a quick look at the reasoning and fears surrounding the upcoming changes to leasehold regulations.

What’s the Government’s reason for a leasehold ban?

Essentially, the new leasehold ban will apply to most new-build houses in England, in an attempt to create a consumer-friendly system that will consequently reduce the exploitation of homeowners through escalating ground rents. This move in England follows the banning of leaseholds in Scotland, and the recent commitment by Welsh house builders not to sell on a leasehold basis unless specific conditions are met.

In 2016 in the North West of the UK alone, 78% of new build homes – including 69% of houses – were sold on leasehold terms, with fears that many buyers were not fully informed in regards to ground rents*.

Some of the other reasons for a leasehold ban include:

  • 3-5 year ground rent increase cycles can lead to unaffordable costs for homeowners further down the line.
  • If freeholds have been sold to a third party, the new owner can be hard to trace
  • Some freeholders charge inflated fees for consents alongside lease extensions
  • Leaseholders can face problems with re-mortgaging
  • Leaseholders can find it hard to sell their property, especially if the lease is for a short period

It’s worth pointing out that apartment blocks will always be subject to leasehold or commonhold tenure as properties built above and below one another cannot all own the freehold land they are built on.

Potential problems that may arise from a change in leasehold regulations

So while the leasehold ban is set to make a positive difference to homeowners, some people within the industry have voiced concerns, such as:

  • Projects for sustainable buildings – another area the Government is pushing – may be compromised by a leasehold ban, as these programmes may need leasehold or similar to manage communal heating systems etc
  • Without the income generated from ground rents, it is possible that house prices may start to rise in order to help developers cover increasing construction and land buying costs – pricing even more people out of the property market
  • The Office for National Statistics has shown a significant increase in leasehold new build houses last year – a possible backlash against the ban and a trend that could continue until the new leasehold regulations are enforced

As with any legislative changes, opinion is often divided due to some parties appearing to benefit, while others lose out. It remains to be seen what the actual outcome of the leasehold ban will be, but it’s certainly true that buyers need more protection from the potential financial trap of over-inflated ground rents, which the new leasehold legislation should provide.