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TODAY'S OTHER NEWS

Price gap between freehold and leasehold widens to eight-year high

The price premium paid by purchasers for a freehold property rather than a leasehold is at its highest for eight years.

An analysis of HM Land Registry data by London agency Benham and Reeves shows that the price gap between a leasehold and freehold property was 14.3 per cent in 2011, dropping consistently year on year to just 5.0 per cent in 2014.

However, it then increased to 6.9 per cent in 2015 and stayed at around this level before increasing last year in the wake of the leasehold scandal. 

But so far this years the gap has widened significantly to 12.3 per cent. 

Just over a year ago a leasehold scandal saw new homes sold with soaring ground rents as a result of developers selling freeholds on behind the back of sellers, and this has clearly had an impact with homebuyers paying even more to avoid such a situation.  

The largest freehold price gaps are in London’s high-end market, with Camden home to the highest with a 227 per cent premium. In Kensington and Chelsea, the average price paid for a freehold property is £4.4m, some 190 per cent higher than the average price paid for a leasehold (£1.5m).

While London is home to the majority of the largest gaps, Chiltern is home to the next largest freehold price premium outside of the capital at 105 per cent.

Despite last year’s revelations, there are still two areas where homebuyers are paying more for leasehold homes. Tameside and Sunderland are home to an average price paid for leasehold homes some 6.0 per cent and 4.0 per cent higher than freeholds.

“There is no doubt that the leasehold scandal has had a severe impact on buyer sentiment and the amount people are willing to pay to avoid any of the potential nightmares that unfolded last year. So much so that the premium paid for a freehold home has already hit it’s highest levels in nearly a decade and will no doubt continue to do so” explains Marc von Grundherr, director of Benham and Reeves.

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    This is a completely defunct argument as no reference to lease lengths is made. I would estimate that the reason for this drastic change would more likely be down to the average lease length of leasehold properties transacting being at an eight year low, having a direct impact on values. It would be interesting to look into why that is.

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