How leasehold reforms could help homeowners

Millions of owners of leasehold flats and houses will be protected from high service charges and unfair treatment if the Leasehold and Freehold Reform Bill becomes law.

The bill, which was introduced in Parliament this week, is the "latest attempt to reform the leasehold system of property ownership", said MoneyWeek, after the government banned ground rents on new leases in 2022. 

Housing Secretary Michael Gove described it as a "landmark moment" that would "slash unfair costs and crack down on exploitation" for millions of leaseholders. 

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But there are warnings about how effective the reforms could be, and if they will even be introduced before the general election next year. 

What is leasehold?

Leasehold is a form of home ownership where you own the property but not the land, unlike freehold where you own both up to a set boundary.

Ground rent and service charges have to be paid to a managing agent or freeholder, and this person is responsible for the maintenance and repair of communal areas.

Almost five million homes in England are owned as leasehold, government figures show, of which 70% are flats and 30% are houses.  

The sector has become "beset with issues", though, said MoneySavingExpert, due to "extortionate ground rents", "expensive" service charges and a "complicated" system if you want to extend a lease. 

There may also be restrictions on what you can do in your home, such as having pets and the high service fees and costs of an extension, especially if a lease falls below 80 years. This means thousands are stuck in homes "they cannot afford to continue living in and cannot sell", said estate agency trade body Propertymark.

What are the leasehold reforms?

The Leasehold and Freehold Reform Bill aims to address these issues. The legislation is designed to make it "easier and cheaper" for leaseholders to purchase their freehold and will increase lease extension terms to 990 years, said the Department for Levelling Up, Housing and Communities. 

It will also "rebalance the legal costs regime" by scrapping requirements that leaseholders pay their freeholders managing costs for an extension and will give leaseholders access to a redress scheme to challenge fees.

Will the leasehold reforms help homeowners?

The current leasehold system is "unfair and outdated", said Propertymark, and reforms would "deliver significant new rights and protections, slash unfair costs and crack down on exploitation". 

It will give leaseholders "more rights and greater protections", said the i news site, but there are concerns about how effective it will be.

The bill bans the sale of new leasehold houses "but not flats", the news site added, an issue that Conservative MPs may try to amend. 

While the bill aims to "empower leaseholders", it could have "unintended negative consequences", said Mark Andrew, senior lecturer in housing economics at City, University of London, in The Conversation.

He warned that if short leaseholds become "much cheaper to extend" then they will rise "significantly in value", and more demand for longer existing leases could also push prices up further, worsening housing affordability.

There are also doubts about whether these reforms can be introduced before a general election takes place, probably next year.

But Gove told the BBC that he is "absolutely confident" that the reforms will pass "by the time of a general election". He said the measure has "widespread support" in the Commons and Lords.