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What do the new leasehold changes mean for property developers?

What do the new leasehold changes mean for property developers?

Pure Commercial Finance discuss the downfall for developers of what these new leasehold changes mean.
The government released the Housing White Paper on February 7th 2018, which set out its priorities for housing and how they can help increase its supply. This can be done by building homes faster, planning for the right homes in right places, diversifying the market and helping people now. This means big changes for developers who currently rely on payments from leases.
There are over 4 million residential leasehold dwellings in England alone, 1.4 million of which are leasehold houses and these new changes will prevent this number from rapidly growing by stopping the sale of new build leaseholds unless completely necessary.
It should become easier and cheaper for leaseholders to buy-out their freehold and further changes (in England only) will include ground rents on new long leases for houses and flats being set to zero.
The Communities Secretary, Sajid Javid has announced a ban on leaseholds for most new build houses to deliver a fairer and more transparent system for homeowners. Hopefully, this will ‘cut out unfair and abusive practices within the leasehold system’.
Javid has said: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.
It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices. That’s why the measures this government is now putting in place will help create a system that actually works for consumers.”
How will the new leasehold changes affect developers?
Tom Lee, Head of Structured Finance at Pure Commercial Finance, had this to say: “Not only will there be less income from annual ground rent fees, but the changes could restrict lending as many lenders will factor in the value of the freehold when calculating the overall GDV of a development site. This allows them to lend more whilst remaining within their LTGDV covenants.
This announcement comes as great news to homeowners, however there are multiple drawbacks for developers.
Previously, builders could also sell the freehold to investors in order to cover the cost of rising building fees and land values, without having to pass the extra costs on to prospective homebuyers. This may no longer be possible.
Overall, these changes could create a two-tier housing market which would make new-build freehold houses more attractive than similar existing leasehold properties.
Peter Riches of Morley Riches and Ablewhite, regularly carries out appraisals for new housing developments and negotiates viability assessments with Local Authorities. He commented – “On recent valuations for development projects, I have noticed there is some inconsistency of approach between valuers about allowing a value for the freehold. This has an impact on value and viability. The quicker this uncertainty is clarified the better for everyone.”

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  • "Morley Riches & Ablewhite have managed two of our multi-let office investments since 2008.  We have always been completely satisfied with their performance and feel comfortable that our tenants are in safe hands.  Rents are always collected promptly and accounted to us accurately.  Service charge accounts are always well maintained and presented to our tenants. We have also instructed Peter Riches to undertake a range of professional work on other properties in our portfolio including valuations, rent reviews, records of condition and schedules of dilapidation.  Again, we have always been pleased with the outcome and as a result have been happy to recommend him to other property owners known to us."
    Graham Holdgate, Moreland Limited
  • "I have known Peter Riches and indeed some of his staff for many years now.  Our family and I in particular have built a close relationship with Peter, instructing him on numerous occasions for projects, lease renewals, rent reviews etc. and have always found him to be honest, reliable and extremely efficient. Peter will always find a solution to all your property needs and matters – his creative talent, input and valuable knowledge is where he really shines above the rest “bar none”! I would have no hesitation in recommending him or his staff for all your property needs."
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  • "I have worked with Morley Riches and Ablewhite for several years. I have always found them to be trustworthy, professional, responsive and accurate while offering a flexible approach to problem solving. They provide excellent value for money and also deliver additional value through their thorough knowledge and network. Reputation and branding are important to any business so it’s important to select organisations who have a compatible constitution and culture. MRA demonstrate empathy with corporate objectives, they manage customer relationships effectively and efficiently and work seamlessly as part of a team. I would recommend them to anyone who needs a professional property service."
    Steve Heywood, Hills Building Group
  • "We have employed the services of Morley Riches & Ablewhite for over 10 years and have always found them to be Professional to deal with. Both Peter and Jon have a wide knowledge of the local commercial market which has enabled them to advise us on various aspects within our diverse business."
    Ian Newman, East Anglian Group
  • "Dudley Smith Partnership has enjoyed a long and positive professional relationship with Morley Riches and Ablewhite. Their broad professional services are delivered with efficiency and they display a practical approach together with proactive client service. Our respective firms have from time to time worked jointly on projects over the years and we are pleased to recommend Morley Riches and Ablewhite when the opportunity arises."
    Dudley Smith Partnership
  • "Peter Riches and his team was recommended to me by a fellow business man.   He has proven himself to be up to a very high standard in his profession and I like the way that he is prompt to deal with any situation in a professional way.   He has a dynamic, enthusiastic team around him which gives me confidence in my decision making in which I value his experienced advice."
    Adrian Coolbergen, Coolbergen Properties
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