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Owning a home—it's the quintessential dream and is considered a cornerstone of stability and personal accomplishment. But let's peel back the layers of what it means to truly own a property in the UK. The recent King's Speech brought forth promises of change, acknowledging the complexities and challenges embedded in the country's property landscape. So, what's the real deal with ownership, and how are shifts in property rights shaping the way we call a place 'home'?
In England and Wales, a staggering 63% of households claim ownership of their homes, with 33% of those without mortgages believing they own their homes outright. It sounds like a success story, but here's the twist—it's not quite true. A reflection on the essence of ownership, as outlined by A.M. Honore in 1961, unveils a bundle of rights that include things like the ability to use, manage, destroy, bequeath, and hold a property indefinitely. Now, juxtapose this with the reality of the UK property market when a leasehold is involved and how it really works.
Enter leaseholds, a significant player in the UK property market dance. In London, a whopping 90% of new flats are sold as very long leaseholds, thanks to a legislative hangover from the early 1900s. Across England and Wales, the figure stands at around 40%. Approximately 5 million homes in the UK, constituting 20% of the housing stock, are leaseholds. The catch? The occupants may have the right to occupy for 99, 125, or even 999 years, but the building and land belong to someone else—the freeholder. They are not the owners.
While the leaseholder foots the bills, they're at the mercy of diminishing value or what is known as a wasting asset as the lease depletes, typically becoming a concern when around 85-80 years are left. Add service charges controlled by the freeholder, ground rent obligations for no apparent services, and restrictions on property alterations, and you have a cocktail of concerns that blur the lines between ownership and tenancy.
Leaseholds often come with strange restrictions and rules leaving “owners” unable to exercise what you might think of as typical rights of ownership to adapt or live in your property as you would like. Many, for example, can’t make relatively insignificant changes without asking the freeholder. A report from Which? even found incidences of leaseholders being charged to have pets and change their doorbells — as an article in Bloomberg stated, “that’s less a leasehold than a ‘fleecehold.’”
Last week’s King’s Speech contained a Leasehold and Freehold Bill. This aims to address these issues by facilitating easier and cheaper freehold acquisition, extending standard leases from 90 to 990 years, curbing fee-gouging by freeholders, and contemplating a cap on ground rents. While these efforts are commendable, the existence of a more promising alternative—commonhold, where flat owners effectively share the freehold—underlines the need for a more profound overhaul.
In the midst of the leasehold debate, another transformation is underway—tenants are slowly but surely gaining a few more crumbs of the rights of real ownership. The King's Speech hinted at a rental reform bill, echoing reforms already in place in Scotland, where no-fault evictions are banned, and fixed-term tenancies are limited. Rent controls have been added to the mix, with a 3% cap on annual rent increases.
At the same time, regulations are sprouting everywhere, restricting owners from using their properties as they please. Compulsory purchase discussions in Scotland, calls for rent controls by London Mayor Sadiq Khan, and towns in Cornwall banning new builds from the holiday-letting sector illustrate a growing trend.
But with these restrictions and the issues with leaseholds, how many of Honore's ownership criteria do they truly meet? if you have the right to do whatever you like to a property you don’t technically own and to stay there indefinitely, how many do you meet?
The tension between absolute ownership and social obligation is ever-present. While some restrictions on ownership may seem reasonable, the shift from owner to tenant in effective ownership rights is noteworthy. Scottish landlords, faced with this loss of property sovereignty, are exercising one of the last rights they have—selling up.
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