While thousands of new homes continue to be sold as leaseholds under a system that Communities Secretary James Brokenshire has called “unfair and abusive”, the Housing, Communities and Local Government Committee has heard that the alternative – commonhold ownership – remains almost entirely unused.
Commonhold ownership gives each resident of a development freehold ownership of their flat or house, and joint ownership of communal areas, which are managed by a commonhold association made up of residents. It is an alternative to the long-term leasehold model, whereby residents own their property, but not the land it stands on. The leasehold system has been widely criticised in recent years as developers have increased ground rents and charged huge sums to extend leases.
Matthew Jupp, principal of mortgages policy at UK Finance, told the Housing, Communities and Local Government Committee yesterday that he believes the lending market for commonhold properties is “fairly reasonable and functioning” with 40 per cent of mortgage providers willing to lend on this basis. Any reluctance from the rest of market – there are around 340 registered mortgage providers in the UK – to lend to these types of properties, he argued, is due to a lack of precedence.
Jupp told the committee members that the biggest advantage of a commonhold lease was residents’ ability to have greater transparency and a greater degree of control over property costs, avoiding “onerous” charges which can come with leasehold properties, which can also mean that residents find their properties difficult to sell.
However, just 20 commonhold properties have been created since the Commonhold and Leasehold Reform Act came into law in 2002. Jupp argued that this makes it difficult for mortgage providers to assess the risk, and to commit to what he described as an “essentially academic exercise”.
MPs (including Labour chair Clive Betts and the Conservative Bob Blackman) challenged Jupp that commonhold properties had yet to take off, and put it to him that without access to mortgages, they were unlikely to do so. Jupp responded that “if we started to see more [commonhold properties] being created by developers, then more lenders would be willing to lend on them”.
The Law Society is currently conducting a commission on “Reinvigorating commonhold: the alternative to leasehold ownership” in an attempt to understand why commonhold is not being used. When the commission concludes in March, it will publish proposals aimed at “improving mortgage lenders’ confidence in commonhold to increase the choice of financing for home buyers”. The Housing, Communities and Local Government Committee is currently conducting an inquiry into leasehold reform, which also involves looking at how commonholds can be used more widely.
A UK Finance spokesperson told Spotlight: “Commonhold could be a useful option for property owners in the UK and lenders are open to discussions about how it could be used in the housing market on a wider basis. We put forward several suggestions to the Law Commission last year about how it could operate more effectively for lenders and their customers and will respond to the consultation in due course.”