There are estimated to be 4.5 million leasehold homes in England, of which 69% are flats and 31% are houses – 94% of leasehold properties are owner-occupied or privately owned, according to government figures.
Over recent years our members have seen many unfair leasehold terms, including high service charges and estate rent charges, lack of transparency on costs, sale transfer fees and excessive ground rent liabilities. At the BSA we have been lobbying for changes to address these issues and we’ve supported the Department for Levelling Up, Communities and Housing (DLUHC) in the development of the Leasehold Reform (Ground Rent) Act.
Whilst the end of unfair ground rent is a step in the right direction, and other reforms are still to come such as giving leaseholder the right to extend their leases by 990 years, moving away from the leasehold model to commonhold is another area currently being explored, and one that I’ve been personally involved with.
Commonhold was introduced in the UK in 2002 but very few properties are in commonhold ownership.
Where in leasehold properties the freeholder owns the land and leases it on a long lease, in commonhold the property owners jointly own the land, without time limit so there’s no reducing lease terms or ground rent. It’s not difficult to see that there were clearly greater incentives for developers to use leasehold rather than commonhold for new properties!
With each commonhold property divided into common parts and units, where each flat is usually one unit, the property-owners have shared ownership and responsibility for maintaining the property. To do this they are required to set up a Commonhold Association with each property owner becoming a member, with shared ownership and responsibility for the common areas.
In July 2020, the Law Commission published a report which outlined a number of recommendations for leaseholders, including enabling them to be able to convert to commonhold.
As a result of the problems associated with leasehold properties, and in response to the recommendations from the Law Commission, the government established a Commonhold Council of which I am a member. We’re making progress in our discussions and I expect the Secretary of State will make further announcements in due course.
My view on ownership models for (largely) flats is that the commonhold model removes many of the unfair terms associated with leaseholder properties. However, moving to a commonhold market is complex and there are a number challenges that need to be addressed.
Lenders will need to have confidence that their security is protected, including assurance that relevant insurance is available and in place, including insurance to protect the solvency of the Commonhold Association. They will also want to be confident that the skills and experience required to maintain the property and fulfil the legal requirements are present in the Commonhold Association.
I therefore suggest that we proceed slowly and cautiously with the roll-out of commonhold ownership, including introducing a trial with new properties and educating homeowners on their legal requirements and responsibilities, both during the buying process and then as unit owners.
Educating other stakeholders in the homebuying and management process, such as lenders, brokers and conveyancers, will also be essential to making it work.
Another separate, but equally important, area that we have been lobbying government on is the terms on which the Support for Mortgage Interest (SMI) loan is available.
Currently those struggling to pay their mortgage have to wait a staggering 39 weeks before they can claim this support, by which time they will often be in significant arrears making it difficult to resolve their financial situation and keep them in their home. We are calling for this to be reduced to 13 weeks, as it was in the last financial crisis.
By contrast, people in rented accommodation who are in receipt of income support are provided with housing benefit from the date their benefits start. As the support for homeowners is a loan rather than a benefit, a reduced waiting time shouldn’t have a long-term detriment on government expenditure.
With families navigating the spiralling cost of living, which is seeing their food, fuel and energy costs rise each month, action is needed now to support those who find themselves financial difficulties.
Paul Broadhead is head of mortgage and housing policy at the Building Society Association
