The ban on ground rent in England and Wales is set to save buyers hundreds of pounds per year. Here is everything you should be aware of regarding the new legislation.
The UK government has announced plans to scrap the ground rent fees paid on new leases in England and Wales. The new plans come into effect from July 30th, 2022. After this date, new leaseholder agreements can only legally charge what the government has termed a “peppercorn” amount.
It is no secret that ground rent costs existing leaseholders hundreds per year. Back in January, the government revealed plans to scrap the fees altogether. This was an effort to encourage property transactions in apartment buildings, in the face of a slowing property market with increasing rent prices. Understandably, growth in this particular area of real estate has floundered since the cladding scandals of previous years. The government is introducing a number of leaseholder reforms which will extend to retirement homes as of April 2023.
The government has announced two separate bills which will help leaseholders out of tricky situations. One will abolish outrageous charges on ground rents which have grossly swollen in recent years. The second of their planned bills will tackle the extension of leases. This second part aims to make it simpler for the average leaseholder to extend their lease, a courtesy often overlooked by the promise of better prices from new tenants.
Although the second bill is yet to reach formal planning stages, the first part of the planned leaseholder reforms is already set to help 4.6 million households.
What Does Abolishing Ground Rent Do for Leaseholders?
As of July 1st, 2022, any new lease sold in England or Wales will not come with ground rent fees. Ground rent is the term we give to a yearly sum paid from leaseholders to freeholders. The fee pays for your lease on the piece of land that your property occupies. Although this has historically been a token payment, recent surges in property prices have extended to include ground rent.
Ground rents used to be a token payment. Recent payments in this area have totalled upwards of £250 per year for some leaseholders. The government deemed this unacceptable after a wealth of complaints from those dealing with rogue developers. On a 10 year lease, £200 per year amounts to the cost of a small car.
The government say that informal lease extensions are part of the policy and that some large developers have agreed to change their existing structures.
How to Take Advantage of the Abolition of Ground Rents?
Those who are in the position to, can take advantage of the abolition in ground rents to start investing in new properties. Leaseholder opportunities are more lucrative than ever, offering the buyer hundreds of pounds off their purchase fees every year they remain on lease. If you want to take advantage of this, leasing out a property of your own can see you saving hundreds.
If you are one of the few looking for investment opportunities, you will find both these and advice on how to capitalise on our website. You can even check out the Edifice Invest news room for regular updates on the housing market in the UK.