How will leasehold regulation changes affect developers?

THE SCENARIO

Recently the government revealed that an eight-week consultation will discuss the current leasehold regulations. In the UK 21% of privately owned properties are leasehold, and all could be impacted by the new proposal.

How will new leasehold regulations affect developers?

During the course of the week, large development companies have expressed their viewpoints on the potential changes and how it will impact their share value, one company stating that they dropped by 3.9% since the proposal was announced.

Specifically, McCarthy and Stone have spoken about their figure changes. They receive, on average, £400-£600, for each leasehold property, worth of ground rent per annum which is index linked and rises with the retail price index (RPI) annually. However, they also expressed that 4% of their revenue in 2016 was by selling off leaseholds and similarly Berkeley obtained £51million from the sales of ground rent assets, exhibiting how lucrative this type of development can be for these organisations.

Companies such as Persimmon will be seriously affected by another part of the proposal, as the consultation looks to ban government-backed help-to-buy loans for leasehold properties, which is their majority market.

On the contrary, for leaseholder’s this can have the opposite affect and on average £5,200 is expended annually by these individuals, covering ground rent and service charges, making this a very expensive method of owning.

Over the previous ten years ground rent has increased by double making leaseholder’s less able to live comfortably and their money is seemingly wasted. The new government proposal would like to see ground rent charges scrapped altogether, showing promising signs for leaseholder’s in the UK.

What next?

This would likely make owning a leasehold property a more appealing and most certainly a cheaper way of living, rising back above owning freehold properties in many major cities. The current climate, if the proposals are put in place, could see a large downward projection in the next three years until 2020 in the development of new build leasehold properties, which currently sits at 15%. This change will be positive for leaseholder’s but not so promising for companies who ply their trade around leaseholds and new-build properties.

Watch this space for further updates, and if you would like to speak with anyone about your development finance requirements, get in touch with our expert brokers who would be happy to guide you in these changes.

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