The Intermediary – April 2025 - Flipbook - Page 47
SPECIALIST FINANCE
Opinion
Leasehold to
commonhold:
Investor impact
T
he Government’s
proposed ban on new
leasehold flats in
England and Wales
marks a significant shi
in property ownership,
and so will be of keen interest to
investors. The proposed transition
towards commonhold, a system
where homeowners collectively
own and manage their buildings,
aims to provide greater control and
transparency for property owners.
The intention is that this will create
greater confidence in the market –
but are there any considerations for
brokers and their clients at this stage?
The Leasehold and Freehold
Reform Act, which became law
on 24th May last year, has already
introduced key changes that will
make it easier for leaseholders to buy
their freehold, extend leases to 990
years, and challenge unreasonable
service charges.
The ban on new leasehold flats
aligns with the Government’s broader
objective of moving away from a
system that many see as outdated
and unfair. However, the details
of the transition from leasehold to
commonhold are still emerging, and
investors will need to stay informed
as the Government publishes
further guidance.
Commonhold is being positioned
as a viable alternative to leasehold,
allowing homeowners to own
their flats outright while sharing
ownership of communal areas.
This system eliminates many of the
issues associated with leasehold,
such as escalating ground rents, high
service charges, and restrictive lease
extension processes.
Historically, some freeholders
have taken advantage of leaseholders
through excessive fees and
mismanagement, and the plans hope
to limit leasehold abuses. For existing
leasehold properties, the Government
is expected to introduce policies that
will make it easier for leaseholders to
convert to commonhold.
Despite the benefits aached to
commonhold ownership, it hasn’t
been widely adopted in the UK
due to the complexity involved in
transitioning the ownership system.
Additionally, mortgage lenders
have traditionally been reluctant to
finance commonhold properties,
fearing complications in management
and resale value.
Acknowledging these issues,
the Government has commied
to introducing measures to
facilitate commonhold adoption,
including financial and legal
reforms. A dra bill, expected
later this year, will provide
further clarity on the transition
process, potential exemptions, and
implementation strategies.
So, what does it mean for property
investors? As ever, the devil is in
the detail, and as is oen the case,
there isn’t a great deal of detail
available currently.
The underlying theme is that
greater transparency and confidence
in the ownership framework of a
property will instil greater value in
the market, although this will clearly
be dependent on the propensity
of mortgage lenders to lend on
commonhold properties.
There may opportunities for current
owners of leasehold properties to
switch to commonhold, which could
potentially increase value – but again,
the process and any costs for this are
yet to be defined.
The biggest considerations are likely
to be for investors and developers
who are creating multi-unit freehold
ANNA LEWIS
is commercial director
at Castle Trust Bank
Details of the
transition from leasehold
to commonhold are
still emerging, and
investors will need to
stay informed”
blocks (MUFBs). Traditionally,
the individual properties in an
MUFB might have been sold on a
leasehold basis.
With potential reforms around
the corner, investors will need to
decide on the best strategy for their
scheme. A commonhold title, for
example, may provide some futureproofing to the investment, helping
to support its value if the proposals
do come into force, but it could also
limit immediate resale potential if
lenders continue to be cautious on
commonhold properties.
The coming months will be critical
as further details emerge about the
transition to commonhold and how
it will be implemented in existing
leasehold properties.
As brokers, all you can do in the
meantime is to be proactive in advising
your clients about the potential
changes. As the market adapts, those
who stay ahead of these changes will
be best positioned to make informed
investment decisions. ●
April 2025 | The Intermediary
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