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New leasehold reform sees end of charges excessive

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The end of toxic leaseholds has been announced by the Government – much to the delight of long-suffering homeowners.

Housing minister Robert Jenrick said the new laws are being introduced to banish the ‘scandalous pitfalls of leasehold’ and ‘put fairness back at the heart of the housing system’.

The changes have been widely welcomed as good news for leaseholders, who have long endured issues such as doubling ground rent and extortionate costs to extend their leases.

New legislation: The end of toxic leasehold homes has been announced by the Government

New legislation: The end of toxic leasehold homes has been announced by the Government

WHAT IS A LEASEHOLD PROPERTY?

A leasehold property has some key differences compared to a freehold home.

If you buy a leasehold property, you will need to know about things such as ground rents and lease extensions.

Here we explain some of the terms you need to know:

1. Leasehold

Unlike a freeholder, as a leaseholder you do not own the land the property is built on. A leaseholder essentially rents the property on a lease for a number of years, often between 90 and 120 years but it can be as high as 999 years.  

2. Ground rents

Ground rent is the rent paid under the terms of a lease by the owner of a building to the owner of the land on which it is built. The amount paid depends on the terms of the lease.

3. Lease extensions

A lease extension refers to a legal agreement that extends the term of an existing lease.

4. Buying the freehold  

If you buy a freehold property, it means you owns it outright, including the land it is built on. You are responsible for maintaining your property and land, so you’ll need to budget for these costs.

If you’re a leaseholder, you may want to consider buying your freehold. There are pros and cons of doing this, as while you may end up having more control, there will also be more effort involved. More information on buying your freehold can be found here.

The changes being introduced by the Government will enable homeowners to extend their leases up to 990 years at zero ground rent.

Miles Robinson, of mortgage broker Trussle, said: ‘We welcome the news that homeowners will be given further rights, enabling them to extend leases up to 990 years at zero ground rent.

‘It’s a significant change which will put a stop to unnecessary charges, and will make owning and selling a home easier and fairer for millions of people.’

Katie Kendrick, of the National Leasehold Campaign, said: ‘For far too long leaseholders have been told that it is their own fault for signing these toxic agreements, but this announcement proves how flawed this system is and is the start of the end for leasehold. 

‘We are delighted that Government has committed to delivering these reforms in this Parliament and urge them to strongly reject the fierce lobbying and delaying tactics they will get from the sector determined to keep the leasehold gravy train running.’

In recent years, the pitfalls of leasehold have left many of those who own this type of property unable to sell their homes.

This is because lenders have been increasingly nervous about lending on leasehold homes due to the increasing costs associated with them and buyers have been put off too.

We take a look at the Government’s announcement and what it could ultimately mean for leaseholders.

Why has the Government decided to take action?

The Government said reform of the leasehold system was required to ‘end some of the worst practices faced by homeowners’.

It claims that the changes are part of the biggest reforms to English property law for 40 years, and will lead to a new system altogether.

It follows a Law Commission report last year that claimed the ‘medieval’ leasehold system was not working. It followed years of campaigning for change, particularly after the scandal of new-build houses sold as leasehold rather than freehold emerged.

Announcing the changes, the Government said: ‘Under the current law many people face high ground rents, which combined with a mortgage, can make it feel like they are paying rent on a property they own.’

The changes will aim to reduce this financial burden currently placed on many leaseholders.

How much will ground rents be under the new law?

The Government says any leaseholder who extends their lease will ‘no longer pay any ground rent’ to a freeholder.

Ground rents can currently run into hundreds if not thousands of pounds a year, and can increase sharply over time depending on the clause in the lease.

The Government has said it will reduce ground rents to zero because this will allow those who want to own their own home to do so ‘without cumbersome bureaucracy and additional unnecessary and unfair expenses’.

How much could this save leaseholders?

The changes could save leaseholders ‘thousands, to tens of thousands of pounds’, the Government has claimed.

Exactly how much has yet to be revealed but the housing minister has said that he wants to reduce the expense of being a leaseholder.

Mr Jenrick said: ‘We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.’

Do the changes mean a longer lease extension?

Under the current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent.

At the same time, leaseholders of flats can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.

The changes mean leaseholders will be able to extend their lease to a new standard 990 years with a ground rent at zero.

What will be the cost of extending the lease or buying the freehold?

Many leaseholders seek to extend their lease or buy the freehold. 

This can be for a number of reasons, not least to gain more control of the management of the property or to make it more attractive to potential buyers (as lenders will not lend on shorter leases). 

Extending the lease is also a condition of reducing the ground rent to zero under the Government’s reforms.

However, extending the lease is something that leaseholders will have to pay to do.

You may decide to buy the freehold first before then extending the lease to take the freeholder out of the equation altogether in the future. You do not have to buy the freehold to extend your lease.

The Government has said that it will ‘cost less’ to extend the lease or buy the freehold than previously – and the cost will be calculated via a new online calculator.

Where can I find the online calculator to work out these costs?

The online calculator will help leaseholders work out how much it will cost to buy their freehold or extend their lease.

However, it will not be introduced until the changes become law, and so leaseholders will need to wait until then to find out the cost.

The current calculation includes elements such as the ‘marriage value’, which increases the cost.

The marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease.

This element is being abolished as the Government has described it as a ‘prohibitive cost’ and wants to ensure that the calculation is ‘fairer, cheaper and more transparent’.

Is commonhold still an option?

The housing minister wants to increase the number of commonhold agreements, a little-known form of ownership that allows residents of apartment blocks to maintain it themselves or employ a maintenance firm to do it.

It would mean that if the company fails to do the job properly, the residents could sack them.

The Government is establishing a Commonhold Council to help encourage homeowners and the market to take up commonhold. 

When will the new law be introduced?

Leaseholders welcomed the news and called for the changes to be passed into law immediately.

Leaseholder Jim Iillingworth said: ‘I welcome the announcement. The Government has proved with Covid and Brexit that it can pass legislation in hours and days. Why should leasehold reforms take any longer?’

In reality, the timetable is likely to take months and could possibly run into next year.

Mr Hayward, of Propertymark, explained: ‘Laws will be introduced when the parliamentary timetable will allow. But they will want to move soon on this ahead of the next General Election to appeal to the electorate.’  

Leasehold expert Bernie Wales, of BW Residential, said: ‘The changes are good news for leaseholders. Leaseholders have waited a long time for them and let’s hope the Government will bring them into law sooner rather than later.’

The Government has confirmed that legislation will be brought forward in the upcoming session of Parliament to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in this Parliament.

How many people will be affected by the new law?

Nearly 4.5million leaseholders could be ‘tens of thousands of pounds’ better off, according to the Government.

Will ground rents also be reduced on retirement homes?

The changes will include measures to protect those living in retirement leasehold properties, which are specifically built for older people.

The Government says buyers of these homes will now have the same rights as other homeowners.

However, Mr Hayward added: ‘While we welcome the Government’s initiative to reduce ground rents to zero for all new retirement properties, we would argue this needs to be extended to all retirement properties to create a level playing field.’

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Bloom secures planning for London ultra-urban warehouse developments (GB)

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Bloom has secured planning consent for two developments in central London. The developments are located in Hackney and Brixton and are the first to be carried out by Bloom for its €290.4m (£250m) ultra-urban warehouse joint venture with Angelo Gordon to acquire and develop sites in central London. In Hackney, on a site by the A12 next to 331 Wick Road, Bloom will develop two units, totaling 14,045ft², designed by Michael Sparks Associates. Construction will start next month, with completion expected in April 2023. In Brixton, at 146-156 Brixton Hill and Units 5 & 6 Waterworks Road, Bloom will develop five units, totaling 35,360ft², designed by Chetwoods. Construction will start in September, with completion expected in August 2023.

 

Both developments will be targeting a BREEAM sustainability rating of ‘Excellent’ and an EPC rating of ‘A+’ in accord with Bloom’s core sustainability objective to reduce greenhouse gas emissions through construction and operational efficiency. The schemes will include extensive urban greening through the implementation of green walls, green roofs, increased landscaping, bird boxes, and insect hotels to significantly improve the biodiversity; renewable energy in the form of solar photovoltaic panels on the roofs; and lorry, car, and cycle EV charging points to encourage sustainable and active modes of transport as well as enhanced power capacity to accommodate future EV transport technologies.

 

Tom Davies, co-founder of Bloom, said: “Our first two planning consents represent an important milestone for the Bloom team, which is working hard to deliver high-quality and design-led industrial and logistics schemes in supply-constrained inner London sub-markets”.

 

Sam McGirr, co-founder of Bloom, said: “These planning consents for well-located sites give us the opportunity to meet the high demand for convenience and speed from businesses, such as F&B delivery, post and parcel, e-mobility, self-storage and urban logistics and consumers in the local communities”.

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Could equity release be used to help more younger homebuyers?

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Younger first-time buyers could be given more financial help from the Bank of Grandma and Grandad, through the use of improved equity release products, a new report suggests.

The document written by Tom McPhail, of consultancy The Lang Cat, claimed that younger buyers are missing out because older members of their family are unable to satisfactorily tap into their property wealth.

Mr McPhail said: ‘Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations.

‘An equity release by grandparents of say £20,000 now, could be transformational for a 20 something struggling to raise a deposit and get on the housing ladder but would make only a very modest dent to the value of the grandparent’s house.’

Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations, says new report

Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations, says new report

The report acknowledged that equity release has endured a poor reputation in the past after customers suffered ‘severe’ financial knocks.

The sector has been criticised for encouraging people to take on debt, particularly later on in life.

There has also been other concerns about equity release, such as customers falling into negative equity where the value of a property is less than the loan taken out against it when house prices fall.

The report suggested that while the equity release sector has since begun to put ‘its house in order’, it is ‘still not perfect’ and some regulatory safeguards need to be strengthened.

It called for several issues to be looked at, including early redemption charges on equity release products.

It said that most providers apply a simple sliding scale of charges, for example 10 per cent in year on to 1 per cent in year 10.

However, it claimed that some providers apply an early redemption charge based on prevailing gilt rates at that time, putting customers at an ‘unfair disadvantage’.

This is because the fees are not transparent as there is no way a customer can know in advance whether they’d be liable for a charge and if so, how much. 

In the past, customers have also fallen foul of the small print on their equity release loans when it comes to early-redemption penalties – such as couples who must pay an exit fee unless both of them need to go into care.

The report also raised questions about interest rates on equity release products. It said providers should be consistent with their lending criteria and not move the goalposts after customers have taken out a loan, as this can make it harder for them to access a top-up loan in the future, potentially forcing them to remortgage. 

Equity release products could help people access their property wealth to help younger members of their family onto the property ladder

Equity release products could help people access their property wealth to help younger members of their family onto the property ladder

The report argued that equity release products could help people access their property wealth to help younger members of their family onto the property ladder.

Mr McPhail added: ‘Raising a deposit has become an increasingly significant barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations.

‘Releasing some of the equity in a property allows older homeowners to choose when and how they share their wealth with the younger generation.

‘This more targeted approach gives them greater control to use their assets to the maximum benefit at the point of need.’

Raising a deposit is a barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations, says the report's author Tom McPhail

Raising a deposit is a barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations, says the report’s author Tom McPhail

Equity release: How it works and advice

To help readers considering equity release, This is Money has partnered with Age Partnership+, independent advisers who specialise in retirement mortgages and equity release. 

Age Partnership+ compares deals across the whole of the market and their advisers can help you work out whether equity release is right for you – or whether there are better options, such as downsizing. 

Age Partnership+ advisers can also see if those with existing equity release deals can save money by switching. 

You can compare equity release rates and work out how much you could potentially borrow with This is Money’s new calculator powered by broker Age Partnership+.* 

 * Partner link

Jonathan Harris, of mortgage broker Forensic Property Finance, said: ‘Equity release has historically been viewed as a ‘murky’, high-risk sector, fuelled by minimal regulation, poorly-qualified advisers, only a handful of lenders and extortionately high interest rates.

‘Fast forward to today and we see a dramatically transformed sector, benefiting from strict regulation, highly-qualified advisers, multiple lenders and access to very competitive interest rates. 

‘Not surprisingly, equity release is now a viable and growing market for older borrowers looking to utilise the gains seen on property prices to bolster lifestyles, as well as pass on wealth to children when they need it.

‘Those considering equity release should make sure they understand the implications and involve family in any decision-making. It is always important to seek advice from suitably-qualified advisers.’

It comes as a separate report by Legal & General suggested that one in every £90 spent by retired Britons is funded by equity release.

It said that equity release funded an estimated £3billion in retirement spending last year, although it didn’t mentioned the money going to younger generations towards buying a property.

Instead, the report’s survey of 2,000 homeowners found that those with equity release have most frequently used the product to finance home improvements, at 26 per cent.

It said equity release is also being used to support costs such as medical expenses at 17 per cent, maintaining living standards in retirement at 16 per cent, and paying off personal debt at 16 per cent, for example paying off interest-only mortgages. 

It suggested that equity release is likely to play an increasingly important role in financing care-related expenses, with 19 per cent of prospective homeowners citing it as a consideration.

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Allianz Real Estate buys prime office building in Rome (IT)

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Allianz Real Estate, advised by Dils, has acquired an office property in the centre of Rome. The transaction, worth circa €175m, is one of the most important to have been carried out on the real estate market in Rome in recent years.

 

The building, consisting of eleven storeys, comprising nine above-ground and two underground, has a gross lettable area of circa 22,000m² and has undergone a major refurbishment, offering the highest environmental sustainability and energy efficiency standards (LEED Gold Certification). The strategic location, between the CBD and Termini Station, is enjoying great success, especially among corporate occupiers. 

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