What about the Leasehold government changes?
today I’m going to answer a question that was posed by Andrew. Andrew posed the question of lease and leasehold and freehold. So this is when you have a flat generally in the UK, well in England and Wales, there’s such a thing as called leasehold and freehold, if you haven’t come across it before.
The leasehold is basically you leasing the ground or the area the property is built on from the freeholder, and the freeholder is a person that owns the ground and the building, and you just lease it, or sometimes you own the building and you lease the ground. So it’s a little bit tricky, a little bit complicated, but you will find that once you look into it, it’s quite straightforward. However, the rules around the leasehold aren’t so straightforward and have been very difficult, very hard to change things, and sometimes if you have the freeholder that goes missing, it’s very hard for you to do anything, and the freeholder refuses to do anything, it can be very, very tricky, and there’s not really been anything in place around that to really help you progress with it.
You can progress with it, it’s a long-winded process, and it means going to a tribunal, getting some solicitors involved, et cetera, et cetera. So now the government has decided that this is a bit unfair, and that if you have a leasehold for example, then you should have the right to access your property for as long as you want, really, and so they’re talking about extending the default leasehold period to 999 years, or 99 years at the moment, so that you have access to the property for as long as you need it, and it shouldn’t be tricky to extend that. So in the past, if your lease is coming to an end, so for example, you have bought the property, and it had a 70-year leasehold on it, and you’ve lived in it for 30 years, it’s now only got 40 years on it, then a lot of lenders and banks don’t want to lend to that because they see it as a risk, because the freeholder may not renew the lease, and you may then not be able to get access to the property.
So for example, the worst case scenario is your lease runs out, so your lease comes to an end, you’ve had your 99 years, and you pass it down to the family, and now it’s gone down to zero, then you actually technically have no right to enter the ground on the property, even though it’s your bricks and mortar and your building, but your building is sitting on the land that belongs to the freeholder, and if your lease has run out, you have no rights to go into that building, which is quite an appalling state of affairs, really, and that’s really why lenders are a bit tricky. So you should have the right to extend your lease, or get a new lease at any time you need to, and these are the kind of things that the government’s trying to change. Also, there are rules around the freeholder, if it’s a block of flats for example, has responsibilities, he has to ensure, or she has to ensure the building, they have to make sure that the building is kept clean and tidy, they have to do any maintenance on anything that goes wrong in and around the property, if you’ve got land around it like grass and footpaths, they have to be clean, bins have to be emptied, etc.
That’s all down to the freeholder’s responsibility, and the freeholder therefore will charge you something to perform that, so they will charge you a service charge, such as, I don’t know, it could be 30, it could be 50, it could be 100 pounds a month to cover those costs. Now, what they shouldn’t be doing is charging you money to make profit, so for example, if it costs them the equivalent of you paying 50 pounds a month to maintain all of those things I mentioned, to cover all the insurance, etc, then that’s fine, and maybe they have to charge a little bit to do the work, a bit of admin time, but if they are charging you 100 pounds, when it actually only costs them 50 pounds a month to do that, then they’re profiting from it, they’re making 50 pounds, they’re making money out of you, and that’s something that’s been quite prevalent, and people have been doing that for many years at the detriment to the property owner, so the leaseholder, so you now are hopefully, if the government changes come into place, will not be in that situation, they shouldn’t be able to make or profiteer out of your lease. These are all the proposals, these are all the things that are supposed to be coming forward, and to be honest, I’ve been in property for 20 years, and for 20 years, governments, various governments, have talked about this because it’s a really good thing for them to talk about, and for them to get the voters on side, because there’s a lot of flats and leasehold properties around the UK.
So Andrew also said, given that this is coming in, would I be better off waiting to purchase a property that might be leasehold, or to after the changes have been made, and are there any adverse effects? So no, there aren’t any adverse effects of having the changes made, I think the changes are a good thing, if they come in, when they say they’re going to come in, I’m not hopeful on them actually coming in. Whether I should wait, I’m definitely not going to, because as a property investor, somebody who’s investing in property, you need to look at every property in its own right, and how it’s going to perform, and what you can afford to pay for it, versus what it’s going to profit for you, and the future proofing, and what might go on in the future. For example, with a leasehold, you might say, okay, so I’m buying it now, currently the service charge is £50 a month, but what’s the history of the service charge over the past? So how much has it gone up each year? Has it gone up every year? Has it gone up a lot? There are certain organisations that are non-for-profit freeholders, so they just earn what they spend out on it.
So the money that comes in is what they spend out on it, plus a little bit of admin for them to manage it. And if that history’s there, then that might be your scenario to say, right, brilliant, I’m happy to purchase this property, because the freeholder is in that position, they don’t charge extortionate. I have a flat, for example, that I bought in 2004, and the lease there was, at the time, the lease and service charges was £30 a month.
It is now 2025, and I’m paying £115 a month. So it has gone up every year consecutively. Whether or not that’s something I’m happy to accept, or obviously I have that property, but the rent has also gone up every year.
So the reality is the rent’s gone up, the lease has gone up, and actually I’m not any worse off. I’m possibly a little bit better off because of the rents have gone up. So that’s my answer to that, Andrew.
Basically, I would not buy a leasehold property right now, but I would buy it as long as it fits in with my strategy and my figures, and I’ve checked everything out. Now, those figures and those strategies are something that I work with people all the time and show them how to do it, show you how to do it. If that’s something you want to learn, get in touch with [email protected], and we can have a chat and see if it’s something that I can help you with to move you forward, because you can do this, and you can make money from property.