After almost 17.5 million people voted for the UK to leave the European Union, the expected falling residential property prices in the wake of the ‘Brexit’ vote may be good news for the UK’s four million leasehold flat owners.
Authoritative bodies throughout the country have urged flat owners to extend the length of their leases now to protect the value of their properties and to exploit the falling lease extension costs.
When extending the lease of a property with <80 years remaining, the difference between the property’s value when the notice is served compared to when the premium negotiations conclude has a significant influence over the total cost of the lease extension. As the lease length decreases, the value of the flat declines 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’).
Experts are alluding to the idea that if - as predicted - property prices fall, 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, and subsequently the cost of the lease extension will have fallen by the end of negotiations. Whereas the extension of a lease may have brought about the uplift in a property's value by £15,000 before, now - because of the falling house prices - 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, is 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. If there is any downturn in the property market as predicted, the slowdown is only expected to be temporary. Yet, for those property owners that do effectively exploit these market movements, once the property market recovers, those leaseholders will benefit not only from securing a cheaper lease extension, but also from the rising property prices post-property market slump.
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 always endeavour to extend the lease on their flat as soon as possible, and it also makes the flat a more attractive option for potential 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.