Leasehold reform – recovering public confidence in housebuilding

The public’s confidence in new build homeownership has been shaken over recent months as the mainstream media have reported on the spiralling rates of ground rent charged to owners of leasehold properties. In fact, leasehold has become the primary concern for homeowners in the UK, according to a study by the HomeOwners Alliance in May. 

When a house is sold as leasehold, the buyer essentially becomes a tenant with a very long term rental, with the ground the home is built on remaining in ownership of the freeholder. The home owner has to pay an annual “ground rent” to the freeholder. Traditionally, flats have been sold as leasehold, but there are now 1.2 million houses that have leases.  

In an attempt to recover the confidence lost in the sector, the Government has proposed to reform leasehold and has formally begun an eight-week consultation. In light of ground rent, in some cases doubling every 10 years, the proposals seek to set ground rents to zero and change the rules on Help to Buy loans so that the scheme can only be used to support new build houses on acceptable terms. The consultation also seeks views on excluding leaseholders from possession orders due to ground rent arrears. 

The announcement of the policy proposals has broadly been well received. This is understandable given that the loss of public confidence risks buyers starting to move away from new build housing stock - in the long term damaging the UK’s housing supply. 

However, there could be unintended consequences resulting from leasehold reform. The rapidly growing community-led housing sector could fall victim to the changes to leasehold proposed by the government. Leasehold is commonly used by Community Land Trusts to ensure local homes remain permanently affordable for their local communities and, it is claimed by the National Community Land Trust Network, that the leasehold reform could inhibit communities from coming together to build the affordable housing.  

Whatever the results are from the Government’s consultation on leasehold reform, it’s clear that the public perception of new build housing cannot be taken for granted. The action taken by the Government to restore confidence in the sector demonstrates how public opinion on house building needs to be managed carefully if we are to challenge the housing crisis. 

The DCLG consultation paper can be read in full here.

This article was written by Oliver Pearce, Senior Account Executive at MPC.