Slow post-Brexit house price growth may be good news for flat owners

Press Release: 12 August 2016

The growth in UK house prices slowed to its lowest pace in three years in July, following Britain’s vote to leave the European Union and recent changes to stamp duty rates on buy-to-let properties and second homes.

According to a survey by The Royal Institution of Chartered Surveyors this week, demand in the UK’s housing market has dropped substantially in the wake of the Brexit referendum, with a record low number of homes on the market and a sharp drop in sales.

However, falling residential property prices in the wake of the ‘Brexit’ vote may be good news for the UK’s four million leasehold flat owners, according to leasehold enfranchisement specialists at 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 also becomes cheaper.

“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 value of leasehold flats and their marketability are affected by the number of years the lease has left to run. The underlying value of the flat declines as the lease length reduces, and drops significantly once the lease falls below 80 years, after which the freeholder is entitled to 50% of any uplift in the property’s value resulting from a lease extension (the ‘marriage value’).

Burns continued: “A flat with a lease approaching 80 years is a depreciating asset and the diminishing lease needs to be addressed, regardless of what the market is doing, because the marriage value becomes applicable when the lease falls below 80 years. However, the full value of the property can be restored once the lease is extended.”

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.

Burns continued: “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.

“Extending the lease length now is a very sensible option. It helps to protect the value of the property in the long run by adding more years to the lease, and it makes the flat a more attractive option for potential buyers because they won’t have to extend the lease for many years.”