This is the first in a regular series focused on the “so what?” of emerging property risk issues for the residential mortgage lending market. At Countrywide Surveying Services we translate policy change into valuation and mortgageability implications, what’s changing, who it affects, and how the market may react.
The UK Government has now published the Draft Commonhold and Leasehold Reform Bill for pre‑legislative scrutiny. This represents a major step toward modernising flat ownership by strengthening commonhold supporting existing leaseholders, and reshaping elements of lease enforcement.
Is Commonhold about to become a lot more common?
A central theme is to reinvigorate commonhold, so it works for a wider range of developments, including larger and mixed‑use schemes, and to make it easier for existing leaseholders to convert to Commonhold if they choose to do so. The Government is signalling a move away from leasehold as the default tenure for new flats once a viable commonhold alternative is in place (with detail subject to consultation and secondary legislation).
Why This Matters: For lenders and valuers, a better‑functioning ownership model can reduce the valuation range inherent with leasehold where it is not just the attributes of the physical asset which impact on value, but the leasehold terms associated with it. From a valuation perspective, early commonhold adoption could introduce new short‑term challenges, particularly where resale markets reflect legacy leasehold stock. But in the medium term, provided there is an appropriate framework in place to ensure effective management of blocks, a simpler and more equitable ownership model has the potential to reduce “tenure discounting” and improve buyer confidence.
The draft Bill proposes that ground rent on most existing residential long leases is capped at £250 per year, with the cap then moving to a peppercorn (effectively nil) after 40 years; with the Government aiming to implement this in 2028, subject to parliamentary process. For the mortgage market, this represents a positive change: ground rent levels and escalation clauses have been a recurring driver of sale delays, enhanced legal scrutiny, and, in some instances, restricted lender appetite. It will be interesting to see whether buyer and lender sentiment improves ahead of the timetable, as the direction of travel becomes clearer.
The flat market’s comeback moment?
From a value perspective flats have underperformed relative to other property types in recent years. This has been driven by a combination of affordability shifts, post‑pandemic space preferences and the layering of leasehold‑related friction (including ground rent concerns, service charge pressures and building safety issues).
If the draft Bill progresses broadly as proposed, we expect the flat market to improve by removing elements that have suppressed demand, reduced lender appetite and impaired liquidity for some leasehold stock.
Overall, the draft Bill strikes a fair balance between reducing income streams for freeholders and investors and delivering tangible benefits to leaseholders. We would expect buyer sentiment to improve as ground rent risk reduces and the market gains clarity. Following implementation, we would also anticipate greater availability of mortgage finance, as lenders revise policies built around Ground Rent caps. Taken together, this could be the boost the flat market badly needs.
Matthew Ison is associate director of technical services at Countrywide Surveying Services
