Leasehold Reform - Which change will actually unlock the market?

Four of the headline reforms aim to fix that confidence in different ways and tip the leasehold scales. Here is how they might really play out.

1. Marriage value – big change or value destruction?

Abolishing marriage value sounds like the Holy Grail. After all, where marriage value is payable it can make up 50% of the total premium. So, by removing the 80-year cliff edge, where lease values collapse and premiums spike, suddenly thousands of short leases should in theory become saleable again.

In practice, unless lenders rewrite their risk models, short leases will remain the poor relation of flat ownership. There is also a real risk that the marriage element will evaporate, rather than transferring from landlord to tenant. This reform may fix an anomaly, but it has the potential to flatten value.

In other words, short leases may not go up in value to the extent of the marriage value saved. The government may have taken a sledgehammer to a system that was inefficient, but at least it priced in the risk of a short lease and shared the upside with both sides. As a win for short lease owners, yes on paper, but markets are fickle.

2. Ground rent caps – the real fix

This could be the one that truly matters, as the legislation interferes, and re writes the terms to an agreement, in favour of leaseholders. By capping ground rents at 0.10% of freehold value, the reforms take the poison out of toxic doubling rent clauses that have frozen parts of the market.

It is not glamorous, but it is effective. It quietly repairs a broken mechanism, and once lenders can reflect that lower rents are less risk, they will hopefully lend. Compare that to today, where lenders force leaseholders to extend perfectly good leases, even if the ground rent is on the higher side. 

In the end, when lenders lend, buyers should buy and if you want a reform that actually moves the needle, this maybe it.

3. 990-year lease extensions – the feel good win

Virtual freehold sounds great in a headline, but realistically most buildings won’t be standing in one hundred years, let alone nine hundred. The real value here is psychological. And like any market, property is part logic and part emotion. Giving buyers a sense of permanence matters. This part of the reforms is mostly cosmetic, something of a placebo effect in a hesitant market.

4. Fee caps and transparency – great optics but no volume

Capping landlords’ fees and enforcing transparency will tackle some long standing grievances. That is good for fairness, but it won’t move transaction volumes.

And the problem for flat owners is if their freeholders cannot recover costs, they will cut corners. If managing agents are underpaid, they will slow down. And transparency, that just means flat owners will now see the service-charge inflation that cannot be avoided. After all, not all landlords are bad actors. The optics improve but are unlikely to move the market.

The real test

Each reform targets a different frustration - affordability, fairness and confidence. But the real test will be transactional: do more flats sell, and do lenders come back?

Marriage value reform might thaw short leases. Ground rent caps should reopen lending channels. The 990-year extension helps soothe buyer sentiment. The rest is more window dressing.

Many in the industry have been saying all along that leasehold doesn’t need to be abolished - it just needs to work better. That means restoring confidence and liquidity. 

So, strip away the politics and the reforms line up as follows:  

• Ground rent caps – the market stabiliser. This puts the market back to where we should have been, before landlords got too creative with ground rents, knowing no one reads the documentation.

• Abolition of marriage value – the high risk, high reward play. 

• 990 year leases - the psychological lift buyers need.

In the end, leasehold will not be fixed by the reforms: it will only thrive and recover when the market recovers.

Mark Wilson - Director, Myleasehold and a member of ALEP (Association of Leasehold Enfranchisement Practitioners)