The shared ownership route to homeownership offers people a great opportunity to get on the property ladder more affordably. However, extra costs such as extending leases can be a financial burden for shared ownership homeowners when they wish to sell or remortgage. Earlier this year, the government announced a major package of reforms to the rules for shared ownership properties to give leaseholders greater long term security. Under the new government plans, all new shared-ownership properties will need to come with a minimum 990-year lease term, this help make the process of extending leases fairer and cheaper for shared ownership homeowners.
Currently homeowners can extend their lease for 90 years, and will likely be aware that when a lease becomes 'short' its value reduces. But of course there is no exact time when a lease is classed as 'short', but generally it is thought to be that way when a lease falls below 80 years. A 'short' lease may create difficulties for a leaseholder if they wish to sell or re-mortgage, this can result in delays to selling their home and unexpected expense.
So the government's proposal to extend leases for long terms is a really good news for shared ownership homeowners. Since it might take some time for the government to bring in the new legislation around these changes, Metropolitan Thames Valley Housing(MTVH) has decided not to wait and to offer this opportunity to our shared ownership customers.
So what is MTVH offering:
- When MTVH owns the building your flat is in, we’ll offer you a 990 year extension to your lease.
- If you are a shared owner we won’t use “marriage value” when calculating the cost of extending your lease. Marriage value makes it more expensive to extend your lease when it has 80 or less years remaining. We expect to be able to stop using marriage value in lease extension calculations for other leaseholders from April 2022.
- The cost of your lease extension will be based on the equity share you have in your home
More good news
The government is also bringing in new legislation to address some of the issues with ground rent, perhaps the most important of which is restricting ground rent for newly built properties to a “peppercorn” amount (for example a token £1). Under the legislation currently proposed, this change will not effect existing homes. Ground rents have been an issue for homeowners because ground rent that is set at a high amount or increases relatively quickly. Such practices have resulted in some homeowners facing unaffordable ground rent payments or having problems re-mortgaging or selling their property as the ground rents are looked upon unfavourably by mortgage lenders.
Ahead of this new legislation, MTVH will stop charging ground rent on newly built homes where we own the land the property is built on. In a move that goes beyond the proposed legislation, where MTVH owns the land that a property is built on we aim to stop charging our customers ground rent for our existing homes from next year. If MTVH doesn’t own the land, and the freeholder continues to charge ground rent, then ground rent payments will continue to be charged.
The leasehold reforms being brought in by the government are a positive change for homeowners and make leasehold ownership a fairer option. MTVH hopes to support leaseholders by enabling them to take advantage of these changes well before most other homeowners in the country.
If you'd like to find out more information about lease extensions, get in touch with us. In addition also ensure that you discuss lease extension proposals with your own professional advisors’. For more information on government proposals please refer to the Gov website.