King’s Speech confirms leasehold reform agenda - Abby Ghafoor, Arc Management
In a historic moment, King Charles III delivered the first King's Speech in over seven decades, outlining the UK government's ambitious plans for property market reforms in 2024. These reforms have the potential to inject fresh energy into the luxury property market.
The government's priorities, as highlighted in the speech, encompass a wide range of areas, including phasing out smoking, imposing stricter criminal sentences, and supporting oil and gas licensing in the North Sea. However, at the core of these commitments is the determination to revamp the rental and leasehold markets through the Renters Reform Bill and the Leasehold and Freehold Bill.
The backdrop for these reforms is the challenging state of the UK housing market. A series of interest rate hikes between December 2021 and August 2023 have sent mortgage rates soaring, discouraging first-time buyers and leading to landlords exiting the market. The King's Speech offers a glimmer of hope for prospective property buyers, though it's crucial to ensure that these reforms don't discourage property investors.
The Renters Reform Bill, initially proposed in the 2019 Conservative Party manifesto, targets "no-fault" evictions, aiming to create a safer environment for renters. This is a welcome development for the 20% of UK tenants who have faced frequent property changes through no fault of their own. The legislation also seeks to strike a balance by streamlining eviction procedures for landlords dealing with problem tenants while cracking down on unscrupulous landlords who exploit legal gaps.
The Leasehold and Freehold Bill is another pivotal change. It mandates that all new homes in England and Wales must be sold as freehold properties, granting homeowners full ownership of their property and the land it stands on indefinitely. This should alleviate concerns related to costly ground rents that have hindered property sales and mortgages. These reforms instils newfound confidence in first-time buyers navigating the complex property market.
Proposals include removing leaseholds for new houses but not for apartments; lengthening the standard lease extension from 90 to 990 years; capping existing ground rents at a “peppercorn” rate, and removing the requirement for someone to live in a property for two years before the lease can be extended.
The news that a significant number of landlords in the capital are contemplating selling their properties due to rising costs underscores the importance of comprehensive property market improvements. To ensure the attractiveness of becoming a landlord in the UK, further enhancements should be considered, including the streamlining of eviction procedures for landlords dealing with problematic tenants.
In conclusion, the King's Speech marks a pivotal step towards addressing long-standing issues in the UK's housing market. It fosters optimism for increased activity in the luxury property market in 2024, potentially ushering in a new era of opportunity for property buyers and investors alike.
Get in touch
Abby Ghafoor
Arc Management
abby@arc-mc.com
Priya Rawal, Founder of The Luxury Property Forum says:
The recent unveiling of the Leasehold and Freehold Bill in the King's Speech holds promise and challenges for the luxury property industry. The proposed extension of leases to 990 years is a positive step for leaseholders, offering simplicity and effectiveness in lease management. However, concerns loom over the potential wealth reallocation from freeholders to leaseholders with the proposed cap on existing ground rents at a "peppercorn" rate, prompting careful consideration of broader financial implications. The Luxury Property Forum, welcomes the reforms but with caution against rushed or incomplete legislation. There is a need for more thorough consultation and a considered approach to prevent unintended consequences. The impact on the cost of new homes is a critical consideration, with any statutory cap on ground rents potentially influencing market dynamics.
While the commitment to streamline the leasehold process is appreciated, we stress the importance of addressing concerns comprehensively, especially the exclusion of flats from the legislation on banning new leasehold houses. As The LPF community has advocated for these reforms, I look forward to detailed measures outlined in the accompanying briefing note. The focus should extend beyond freehold acquisition to encompass lease extensions and the right to manage, aligning with our long-standing industry priorities. In summary, the King's Speech outlines transformative potential, and as we await further details, I remain hopeful for a balanced approach that considers the interests of all stakeholders involved in the luxury property landscape.
Official response from the RICS:
Renting reform: RICS is glad that the government has committed to abolishing Section 21 ‘no-fault’ evictions. We agree that the court system must be reformed and digitalised, however the lack of timescale for it will be of little comfort to renters, who are also facing increasing rents and decreasing choices of homes whilst we continue to under-deliver on new housing supply.
Leasehold reform: RICS is pleased that legislation will be introduced to make it cheaper and easier for leaseholders to purchase their leasehold property and tackle unfair service charges. This should provide greater protections and certainties for both tenants and landlords. Also, the new Ombudsman offers tenants greater protection and support in challenging unfair practices by landlords.
Planning reform: The planning system in the UK is one of the issues that need to be fixed to ensure housebuilding. RICS welcomes the government’s continued focus to regenerate towns and “put local people in control of their future.” Our recent construction survey revealed that a notable drop in housebuilding caused overall construction workloads to fall.
Changes to permitted development rights or removal of planning needs for extensions and conversions must be managed to avoid rabbit hutch homes; RICS regularly sees properties where relaxation in planning rules has come at the detriment of quality, safety, and sustainability.
Energy efficiency: RICS is disappointed that the government moved away from its commitment to introducing higher energy-efficiency standards into the rental market. Included in the Kings Speech, should have been an announcement to reform EPC methodology, given the Independent Review into Net Zero recommendation to introduce new energy standards based on a new energy measurement system.