Since the UK’s Brexit vote on June 23, house price growth in the UK has been subdued.
Just yesterday, Rightmove reported that the average asking price for a property in England and Wales fell by 1.2% this month.
Earlier this month The Royal Institution of Chartered Surveyors reported that demand for homes has dropped significantly since the EU referendum.
However, this market dip may actually represent good news for the UK’s four million leasehold flat owners, according to Leasehold Solutions.
The company has called on flat owners to extend the length of their lease now, in order to protect the value of their properties in the long-term.
The difference between a property’s value when notice is served to when negotiations conclude is a factor in the calculation of the cost of a lease extension.
When property prices are rising more slowly, or falling, the cost of the lease extension becomes cheaper, says the firm.
“Canny flat owners should serve notice to extend their lease now, because the lease extension will end up costing them less by the end of negotiations,” explains Louie Burns, managing director of Leasehold Solutions.
“We expect that the slowdown in house price growth will be a short-term blip, so once the property market recovers, flat owners who have extended their lease already will benefit from having secured a cheaper lease extension and rising property prices.”
The firm points out that a flat’s value is affected by how long is left to run on its lease – the underlying value of a flat decreases as the lease length decreases, and could drop significantly once the lease falls below 80 years.
At this point, the freeholder is entitled to 50% of any uplift in the property’s value resulting from a lease extension, this is know as the ‘marriage value’.
Burns says that once a lease which has fallen below 80 years is extended, the property’s full value is restored.
Flat owners have a legal right to extend their lease by an additional 90 years and reduce the ground rent to zero if they have owned their flat for more than two years.
“Whatever happens in the housing market, lease lengths will continue to decline year-on-year, and it will always be harder to sell a flat with a short lease than one with a longer lease,” adds Burns.
He says that extending a lease now, while prices continue to dip, could be a shrewd move as it helps to ‘protect the value of the property in the long run’.
What’s more, a flat with a long lease is more attractive for prospective purchasers as they won’t have to extend it in the near future.
*Marc Da Silva is away on annual leave until August 22nd. Conor Shilling will be undertaking editorial duties in his absence. Please send any press enquiries to [email protected]
