Since the British electorate voted for 'Brexit' on 23rd June, the rise in UK house prices has stalled.
Paired with Rightmove's recent reports declaring that the average asking price for a property in England and Wales fell by 1.2% this month, the RICS (Royal Institution of Chartered Surveyors) have reported that the demand for properties in the UK has dropped significantly since the EU referendum. Yet, Rightmove have also said that although the 'Brexit' vote had knocked sentiment, the month-on-month decline was in line with the traditional summer lull in UK property prices and the downturn should not be overstated.
Nevertheless, regardless of the reason for the recent slump, this regression may present a good opportunity for the UK’s four million leasehold property owners and leaseholders should look to extend the length of their lease now, in order to protect the value of their investments for the foreseeable future.
Providing that they have owned their flat for a minimum of two years, flat owners have the legal right to extend their lease by an additional 90 years and reduce the ground rent to zero. When a lease which has fallen below 80 years is extended, the property's full value is restored but the freeholder is entitled to 50% of any uplift in the property's value resulting from the lease extension; this is known as the 'marriage value'.
With property prices falling, lessees should serve the notice to extend their lease now as the uplift in the value of the property will likely be less than it would have been, the 'marriage value' would be lower, and subsequently the overall cost of the lease extension will have fallen by the end of negotiations; particularly for those extending leases with less that 80 years remaining. Whereas the extension of a lease may have caused an uplift in a property's value by £15,000 before, now - because of the falling house prices as a result of the 'Brexit' vote - a lease extension may only bring about an increase of £10,000 in the property's value; meaning only £5,000, rather than £7,500, will be payable to the freeholder in the form of the 'marriage fee' or 'marriage value'.
However, lessees should take advantage of this opportunity whilst it lasts. Any downturn in the property market is only expected to be temporary. Despite the mass uncertainty around what affect 'Brexit' will have on the UK economy, it is possible that house prices could rise again in the near future. We just don't know!
For those that effectively exploit these market movements, leaseholders will benefit not only from securing a cheaper lease extension, but also from the rising property prices once the property market recovers.
Ultimately, regardless of economic fluctuations, political reform, and any subsequent affects on the housing market, lease lengths will continue to fall at the same rate they always have. To protect the value of their property, leaseholders should extend the lease on their flat as soon as possible, and it also makes the flat a more attractive option for prospective buyers because they won’t have to extend the lease at any time in the near future. A flat with a short lease is always harder to sell than a flat with a longer lease.
If you want to extend your lease to protect the value of your investment, please do not hesitate to contact us on 0845 838 5172 or email us at email@example.com to see how our services can help you.
Hopkins, J. (2016) 'Brexit worries and summer holiday slowdown see property asking prices fall £3,602 in August', ThisisMoney.co.uk, 15 August [Online]. Available at: http://www.thisismoney.co.uk/money/mortgageshome/article-3740004/Average-UK-house-price-falls-3-602-August-says-Rightmove.html (Accessed: 15 August 2015).