Ban on creation of new leasehold homes announced

A ban on the creation of new leasehold houses in England and Wales will be included in a Government shake-up – but there was criticism that the announcement did not refer to flats.

Other than in exceptional circumstances, new houses in England and Wales will be freehold from the outset, under reforms outlined in the King’s Speech.

Maya Singer Hobbs, senior research fellow at the IPPR (Institute for Public Policy Research), said: “Leasehold is an archaic and unfair part of the UK housing system.

“Although the plan to ban leaseholds on new houses is welcome as a step in the right direction, the real issue is with what wasn’t announced. The announcement does not cover new flats, which make up 70% of leaseholds in England.”

Paula Higgins, chief executive of the HomeOwners Alliance, welcomed the reforms, but said: “The Government’s reforms fall short of breaking homeowners free from the shackles of leasehold completely by still allowing the sale and purchase of leasehold flats in the future.”

She added: “We will continue to campaign for commonhold flats and a ban on leasehold.

“Our other major concern about the Bill is parliamentary time. With over 20 Bills announced today, we need to see a draft Bill by Christmas – otherwise these reforms remain fiction and leaseholders continue to suffer.”

Rip-off charges

Rip-off charges will also be tackled, with a consultation on capping existing ground rents, to ensure leaseholders are protected from making payments that require no benefit or service in return and can cause issues when homeowners want to sell up.

Reforms to make it easier for leaseholders to purchase their freehold and tackle punitive service charges were outlined in the King’s Speech. The changes could make it easier for people to sell their properties and get mortgages.

The Leasehold and Freehold Reform Bill aims to improve homeownership for millions of leaseholders in England and Wales, by making it cheaper and easier for more leaseholders to extend their lease, buy their freehold and take over management of their building.

The standard lease extension term will be increased from 90 years to 990 years for both houses and flats, with ground rent reduced to £0.

This will ensure that leaseholders can enjoy secure ground rent-free ownership of their properties for years to come, without the hassle and expense of future lease extensions.

The current leasehold system leaves many homeowners trapped in properties or facing high costs to buy their freeholds, the Government said.

In one case it highlighted, someone bought a flat in 2008 with a £300 ground rent and a 10-year doubling clause, meaning the homeowner now pays £600. The homeowner was quoted £25,000 to extend the lease.

In another case, a homeowner who bought a new-build flat in 2020 has seen their ground rent rise from £350 to more than £450 per year.

Around 752,000 households with children and 1.48 million over-65s are leasehold homeowners, according to the Government.

Just over a fifth (22%) of home sales in 2019 were leasehold, or around 238,000 transactions in total, Land Registry figures show.

A requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from the changes will be removed, so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.

The changes will also enable leaseholders in buildings with up to 50% of non-residential floorspace to buy their freehold or take over its management.

This will mean an increase to the 25% non-residential limit, which prevents leaseholders in buildings with a mix of homes and non-residential spaces such as shops and offices from buying their freehold or taking over management of their building.

Transparency

The Government also plans to improve leaseholders’ consumer rights by requiring transparency over service charges in a standardised, comparable format. This will help leaseholders to challenge any charges which they feel are unreasonable.

Access to redress schemes will also be extended, with more freeholders being required to belong to redress schemes.

A presumption that leaseholders will pay their freeholders’ legal costs when challenging poor practice will also be scrapped.

The legislation follows the Leasehold Reform (Ground Rents) Act 2022, which put an end to ground rents for new, qualifying long residential leasehold properties in England and Wales.

The Government also plans to support the 11 million private tenants and 2.3 million landlords in England through the Renters (Reform) Bill.

The legislation will include stronger powers to evict anti-social tenants.

Timothy Douglas, head of policy and campaigns at property professionals’ body Propertymark, said some developments may have aspects that justify specific service charges, adding: “As every development will likely have unique characteristics by design, there may well be a need for sensible provision and certain clauses/exemptions where an ongoing management fee might be appropriate.

“There may well be communal aspects of a development design where a management charge might still be relevant for the upkeep of an area for example.”

Warranty and insurance provider the National House Building Council (NHBC) released new figures on Tuesday showing the number of new homes being registered fell by 53% in the third quarter of 2023, compared with the same period last year.

It said that 20,680 new homes were registered in July, August and September 2023 across the UK – less than half of the 44,153 home registrations recorded in 2022.

Steve Wood, chief executive at NHBC, said: “Housebuilding activity is a key indicator of the health of the UK economy. With stubbornly high interest rates, persistent inflationary pressures, an ineffective planning system and an increasingly complex regulatory environment, it is no surprise fewer homes are being built.

“Despite a significant decline in new home registrations in the quarter, the sector is fundamentally sound, with developers focused on completing existing projects.”