The UK government has taken a significant step towards overhauling the country’s leasehold system, a move that could have major implications for property investors and landlords. The recently announced reforms aim to phase out leasehold ownership for houses and promote commonhold for flats, marking what has been described as the ‘beginning of the end’ for the feudal leasehold system.
Topics:
Key Changes in the Leasehold Reform
How Will This Affect Property Investors and Landlords?
What Should Investors Do Next?
Key Changes in the Leasehold Reform
The reforms include:
A ban on new leasehold houses – The government has announced plans to ban the sale of new leasehold houses, meaning all new houses must be sold as freehold, with limited exceptions. (in planning)
Commonhold system for Leasehold Flats and Buildings – The government plans to ban the sale of new leasehold flats, transitioning to a commonhold system where residents collectively own and manage their buildings. This move aims to end the "feudal" leasehold system. (Planned for Second Half of 2025 - The government will also launch a consultation to ban new leasehold flats later this year to explore the best way forward.)
Simplified and cheaper lease extensions – Leaseholders will be able to extend their leases for 990 years at zero ground rent. This reform reduces financial uncertainty and ensures long-term security for leaseholders, eliminating the need for repeated lease renewals. (in planning)
Immediate Eligibility for Lease Extensions – Leaseholders will no longer need to have owned their property for a minimum period (previously two years) before being eligible to extend their lease or purchase the freehold. (In Effect – 31 January 2025)
Abolition of ‘marriage value’ – Previously, when a lease fell below 80 years, leaseholders had to pay ‘marriage value’ when extending their lease or purchasing the freehold. The removal of this charge makes lease extensions and freehold purchases significantly more affordable. (in planning)
Commonhold promotion for flats – The government is encouraging commonhold to replace leasehold, giving flat owners more control over building management.
Right to Manage (RTM) Reforms – These reforms have been implemented to make it easier for leaseholders to take over the management of their buildings. Changes include increasing the commercial floorspace limit to 50% and reforming costs and voting rights associated with RTM applications. (In Effect – 3 March 2025)
For more details on these changes, visit:
How Will This Affect Property Investors and Landlords?
Challenges for Leasehold House Owners
For landlords who own leasehold houses, the reforms mean that new houses can no longer be sold under leasehold arrangements. This could impact the resale market and mortgage lending criteria.
One of the biggest issues with leasehold properties has been securing mortgages, as providers typically only lend on properties with leases above 70 years. Additionally, extending a lease has been an expensive and time-consuming process, leading to property depreciation and uncertainty in negotiations with freeholders. These reforms will simplify lease extensions and reduce administrative burdens, potentially making properties easier to sell and finance. However, landlords may still face procedural hurdles when transitioning properties under the new framework.
Impact on Freehold House Owners
For landlords who own freehold houses, the legal landscape remains stable, but market dynamics could shift. As freehold becomes the norm for new houses, demand may rise, potentially increasing property values. Additionally, if commonhold becomes more widely used, landlords managing multiple properties in shared developments may face new administrative responsibilities and collective decision-making processes, particularly regarding maintenance and service charges.
Superior Leaseholds and Their Impact on Investors
One exception to the freehold requirement is properties built on land already under a superior leasehold. This means that if a developer or investor purchases a property on land subject to a long lease, the property itself may still be sold as leasehold.
For investors, this could mean:
More complex legal arrangements, as both the superior leaseholder and freeholder may impose restrictions.
Potential financing challenges, as lenders may be cautious about leasehold properties tied to superior leases.
Administrative complications when extending leases or purchasing the freehold, requiring negotiations with multiple parties.
While less common, investors should be aware of these exceptions when acquiring leasehold properties.
Lease Extensions and Freehold Purchases
The removal of ‘marriage value’ makes lease extensions and freehold purchases more affordable. While this benefits leaseholders, landlords may still face procedural hurdles such as obtaining consent from freeholders and dealing with legal requirements. These processes could become more time-consuming, particularly in larger developments.
Investment and Portfolio Strategy Adjustments
With new leasehold houses no longer being built, but existing leasehold houses still available for purchase, investors should reassess their portfolios. Freehold properties are likely to become more attractive, and landlords should stay informed on how commonhold structures evolve. Additionally, new administrative requirements may arise, impacting property management strategies and regulatory compliance.
What Should Investors Do Next?
Review Leasehold Portfolios – Evaluate how these reforms impact current properties.
Monitor Lending and Mortgage Criteria – Lenders may adjust their policies in response to these changes.
Consider Freehold Acquisitions – With leasehold houses being phased out, freehold properties may become more attractive.
Prepare for Administrative Changes – Leasehold reforms could introduce new procedural requirements for landlords.
Final Thoughts
While these reforms mark a significant change in the UK property market, they also create opportunities for investors who can navigate the shifting landscape. Understanding these changes is crucial for making informed investment decisions, particularly when managing leasehold transitions and assessing new opportunities.
At Perfect10 Property Group, we specialise in helping investors maximise their property portfolios, ensuring they stay ahead of regulatory changes and market trends. While we do not provide legal advice, our team can offer strategic insights and guidance tailored to your investment goals.
If you want to discuss how these reforms could impact your property investments and explore the best strategies moving forward, contact us today.
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