The average price of short-leasehold property could grow by around 9.9% following leasehold reforms, predicts City, University of London.
Earlier this month in his speech to the houses of parliament, King Charles announced the Leasehold and Freehold Bill while setting out the government’s agenda ahead of the next general election.
The bill aims to make it easier for leaseholders in England and Wales to extend their leases, buy their freeholds, and take over management of their buildings.
It includes measures such as making it cheaper and simpler for existing leaseholders in houses and flats to buy their freehold; increasing lease extensions from 90 to 990 years for flats and houses, with ground rents reduced to £0; and banning the creation of new leasehold houses — excluding “exceptional circumstances” — so that each new house will be a freehold from the outset.
The report ‘Leasehold Reform Proposals in England and Wales: The unconsidered financial implications of reducing the premium in lease extensions’ predicts that the drop in premiums will negatively impact housing affordability.
“At the national level, we estimate that the immediate effect from the capitalisation of the reduced premium into prices will increase the value of the short leasehold stock by about £10.9bn, which translates to an average price rise of a short leasehold by around 9.9%,” said the report.
“The short-term effect on the entire leasehold market is a 1% rise in prices — the longer-term effect, on the assumption that all short leaseholds are extended, is a 3.2% price increase nationally.”
The paper highlighted how the consequences vary regionally, with the largest deterioration in housing affordability in the short- and long-term is in the North East, West Midlands, Wales, and East Midlands.
“Short leaseholds provide a route for lower-income households to own a home, particularly in London and the southern regions,” stated the report.
“We estimate that the reforms could lead to longer-term price rises in these regions by an average 2.5%.
“Investors in London and the southern regions tend to rent out short leaseholds to low-income households.
“The reforms provide them with an incentive to either realise the capital gain and sell up if short leasehold prices rise, or extend their lease and refurbish the dwelling to achieve higher rental income — both of which would lead to a decrease in cheaper rented accommodation in the private sector.
“The total effect is likely to be higher than our reported results due to the pipeline of leases turning short in the future.”
