Study Reveals Government Leasehold Reforms May Lead to Property Price Hikes

A new study from Bayes Business School and Knight Frank has indicated that the UK Government’s potential leasehold reform plans might lead to an average price increase of 9.9% for short leasehold properties. This prediction arises amidst the government’s announcement in the King’s Speech on 7 November about plans to standardize the extension of leases to 990 years. The government, however, has not confirmed the abolition of marriage value, a key aspect previously promised by the Housing Minister in January 2021.

The research, published by the UK Collaborative Centre for Housing Evidence (CaCHE), reveals that if these reforms are implemented, they could conflict with the government’s efforts in promoting housing affordability and levelling up. The study predicts a £10.9 billion rise in the immediate underlying values of short leasehold stock in England and Wales, with the impact varying across regions. It is based on the assumption that all short leaseholds would be extended, forecasting a national price increase of 3.2% in the leasehold market.

Regions like the West Midlands, South East, and London, with either large stocks of short leaseholds or high property prices, are expected to see the largest impacts. The research also points out that the financial benefits of these reforms are likely to favor private-rented sector investors more than owner-occupier lessees.

Dr James Culley, Partner and Data Science Lead at Knight Frank, stated: “The current leasehold enfranchisement process appears complicated… For those reasons, the government proposals are laudable… Unfortunately, as they stand the proposals also come with large unforeseen consequences regarding affordability and pricing within the leasehold market.”

Jeremy Dharmasena, Partner and Head of Leasehold Reform & Litigation at Knight Frank, added: “The government’s initiative towards simplifying leasehold reform… comes with positives and negatives. The changes will provide tenants with stability… However, I’d caution against retroactively capping ground rents, as it will have a significant impact… Abolishing marriage value… will inevitably create further challenges.”

Dr Mark Andrew, Senior Lecturer at Bayes Business School, noted: “Our study has found that the Government’s plans to extend lease length and abolish marriage value could lead to a significant rise in the cost of purchasing a leasehold dwelling… Such price rises have implications for the Government’s levelling up agenda… The largest beneficiaries of windfall financial gains will be investors and middle-income occupier lessees rather than lower-income occupier lessees.”

The findings highlight that the impact of these proposed reforms is not uniform across regions and could result in significant financial gains for some while potentially exacerbating affordability issues for others. The potential reform effects on housing supply in the private rented sector, especially in lower-income areas, are also a key concern.