Freehold homes go for a 77% property price premium but government reforms could close the gap

Leasehold homes carry a certain stigma amongst UK homebuyers, and understandably so due to a string of scandals hitting the headlines in recent years and also due to the huge fees often charged to homeowners to increase the time left on their lease.

As a result, leasehold homes can be worth considerably less than freeholds, as the latest research from new build snagging experts, HouseScan, has revealed. But that could be about to change as the government has now given this out of date area of the UK property market an extensive reform, allowing leasehold homeowners to extend their lease to nearly 1,000 years at zero ground rent.

HouseScan analysed the last 12 months of property market transactions across England and Wales to see how leasehold homes currently stack up against freeholds where sold prices are concerned.

The figures show that across England, leasehold homes have sold for an average of £185,129 in England over the last year, while freehold homes have sold for £327,009; 77% more. In Wales, the average freehold has sold for 44% more at £163,993 to £113,660 for the average leasehold.

The leasehold/freehold property price gap is largest in London, where freeholds have sold for a huge 97% more over the last 12 months. The South East and East of England have also seen freehold homes sell for 80% and 83% more than leaseholds, respectively.

This gap is smallest in the North West, although the average freehold home has still commanded an average sold price 32% higher than that of leasehold homes in the last year.

Where regional price gaps are concerned, London accounts for five of the top 10 largest. Kensington and Chelsea is home to the highest leasehold to freehold property price gap in the whole of England and Wales. Over the last year, the average freehold home in the borough has sold for £3.3m. In contrast, leasehold homes have averaged just £980,000 during the same time period; resulting in a freehold premium of 237%.

Westminster (198%), Camden (154%) and Hammersmith and Fulham (142%) are also home to some of the highest property price premiums paid for a freehold home, with Harborough ranking as the highest outside of London (142%).

However, with this new government legislation, the lower price paid for leasehold homes could now present an opportunity for homebuyers to get on the ladder at a far lower cost, without the fear usually associated with this property type.

In the last year, leasehold homes in Blaenau Gwent, Barrow-in-Furness, Middlesbrough, Burnley and Hartlepool have sold for less than £70,000 on average and as little as £51,000. As already mentioned, even in the most expensive leasehold market of Kensington and Chelsea, a leasehold purchase would see homebuyers save an average of £2.3m.

Founder and Managing Director of HouseScan, Harry Yates, commented: “I think we can all agree that the government’s shake-up of the leasehold structure is well overdue. For far too long, leasehold homeowners have been at the mercy of their freeholder and we’ve seen some pretty backhanded practices uncovered in recent years.

“It’s simply not acceptable to toy with someone’s life, particularly for little motivation other than greed and these latest reforms should help steady the ship and bring greater security to those in the leasehold space.

“It could also help reduce the current price deficit paid for leasehold homes as the stigma surrounding them starts to lift. All too often, the renewal of a lease or the time left on it can impact the price a buyer is willing to pay. So a 990-year extension and the promise of zero ground rent should help overcome this.

“Of course, it’s important to note that property type also plays a big part in this difference in price and so we’re unlikely to see the gap close completely. While leasehold properties aren’t exclusively restricted to flats, they are far more common when compared to other types of housing stock and so this also influences the lower price paid for leaseholds in general, but also in areas such as London where a greater proportion of housing stock is flats.”