Principle changes which may impact mortgage lending and valuations.

NOTE: None of the changes below will be implemented immediately, they are all subject to secondary legislation (statutory instruments) of which there has been no date set. The earliest in principle could be immediately after 9th July 2024 under a new government but it is more likely to be 2025/2026 before we see any of the legislation come into force. As of today, there are no changes to the way we treat residential valuations for mortgage purposes irrespective of the current lease terms.

1. There will no longer be a two year ownership condition for claims to acquire a new (extended) lease of a flat as is currently the case. This is a positive change relating to mortgage lending and valuations. Lease extensions can be applied for on the day the buyer moves in.

2. In the case of statutory lease extensions (for flats and houses), the new lease will have a term of 990 years plus the unexpired term of the previous lease (rather than the current 90 years for flats and 50 years for houses). This is another positive outcome for mortgage lending, also giving borrowers lease term certainty for many future generations of their families/beneficiaries.

3. There are a number of significant and complicated amendments to the method for determining the price payable for a lease extension:

a. The removal of marriage value as a component of the price / premium making extending the lease potentially cheaper (this also makes the current 80 year threshold redundant)
b. Ground rent assumed to be capped at 0.1% of the market value of the property being valued, for the purpose of determining the capitalised value of the ground rent. This cap is not for existing or future ground rents payable under the terms of the lease, just for the purposes of calculating the lease extension premium
c. Capitalisation & Deferment rates (the multipliers used to calculate the cost of lease extension) yet to be decided on. This has the potential to offset the benefit for leaseholders of marriage value removal

4. New standalone rights for leaseholders of flats to reduce their ground rent to a peppercorn (without having to pay to extend the term), subject to the payment of a premium.

5. Limited rights for Landlords to recover their costs.

6. Improved transparency and terms given to homeowners in connection with service charges and estate charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged. There will be a requirement to produce a year-end report with details of planned major work etc. Greater transparency of service charges could assist in keeping excessive charges under control, assisting valuers and lenders in determining if value or mortgagbility is be impacted.