Irrespective of whether you’ve ever purchased a flat, you’ll no doubt be familiar with the term leasehold. However, changes proposed by the UK government could see this type of homeownership become a thing of the past in the not-too-distant future.
A white paper published last month by the Ministry of Housing, Communities and Local Government, entitled Commonhold White Paper: The proposed new commonhold model for homeownership in England and Wales, makes the UK government’s position clear on leasehold. And we’ll summarise it by saying that it isn’t very favourable.
Referring to the leasehold model as ‘feudal’, the UK government puts forward the case for making commonhold the default tenure when it comes to flat ownership.
Leasehold vs Commonhold
As a Maidenhead mortgage adviser, our view is that a switch from leasehold to commonhold is likely to positively impact homeowners. But before we explain why, let’s compare the two models.
| What is leasehold? | What is commonhold? |
| With leasehold, you own the property – but only for a defined period. This can be from decades to centuries; however, the lease will expire at some point (unless you can extend it, which is usually at great cost). Not only that, but you’re likely to be subject to ground rent charges, as set by the third-party landlord – the person who owns the land on which your property sits. | With commonhold, you own the property forever. There is no associated lease that runs down with the clock, and there are no ground rent charges. Any major decisions are made by you and your fellow flat owners. And, as there is no risk of a lease expiring, there is no risk of facing high lease extension costs. |
What are the benefits of commonhold?
On reading a side-by-side description of the two models, it’s not hard to see why leasehold – despite being the norm since the 1920s – is the less attractive of the two.
However, it’s not just the ownership aspect that can be challenging under a leasehold agreement. Getting a leasehold mortgage can be, too.
First of all, lenders are more likely to approve mortgages for commonhold properties on the basis that there’s less risk. Not only that, but those applying for a commonhold mortgage are more likely to be able to access better mortgage rates.
To compound the issue, mortgage lenders are cautious about lending where the lease is short (and by short, we mean less than 80 years). Additionally, the ongoing cost of ground rent and maintenance charges represents a monthly outgoing, which is likely to impact your affordability at the point of application.
If you’re getting a commonhold mortgage, then you don’t have to worry about any of this. And, importantly, there is no question mark over the property’s resale value – another factor that lenders take into consideration. Afterall, if the attractiveness and value of a property doesn’t wane in parallel with a shrinking lease period, then there’s less risk for the lender.
A broker’s view
As a longstanding mortgage broker in Maidenhead, we’ve been helping our clients get a leasehold mortgage since we opened our doors in 2006. And whilst that hasn’t come without its challenges over the years, this is where the benefits of using a mortgage broker shine through as we help our clients navigate the obstacles associated with applying for a leasehold mortgage.
However, this isn’t about us or our team of Maidenhead mortgage advisers, it’s about the homeowners and prospective homeowners who are too often stifled by the leasehold model.
We agree with the government’s view. The current leasehold system is feudal, outdated and due for an overhaul, which is why we support the proposed changes.
And, as a commonhold mortgage specialist, we are well placed to help those, who, in the not-too-distant future, may be applying for a commonhold mortgage on a much more frequent basis.
To discuss leasehold or commonhold mortgages, contact our Maidenhead mortgage brokerage on 01628 560820 or email enquiries@altonmortgages.co.uk to arrange an initial mortgage consultation.