RICS has announced its intention to issue a Guidance Note on the valuation of residential leasehold properties for secured lending purposes in England and Wales.
According to RICS, approximately 20% of English and Welsh housing stock comprises leasehold properties and this is set to become more common as original terms decrease.
With the guidance, the intention is to increase awareness of the depreciating nature of leasehold tenure so that buyers of leasehold property can be made fully aware of the costs of occupancy which can affect value.
In recent years, there have been significant changes in costs that are borne by the leaseholder, such as substantial maintenance charges, compliance with safety regulations, and escalating ground rents, all of which have led to adverse publicity.
The guidance note proposes that professionals should make appropriate enquiries before reporting the level of leaseholders’ costs, demonstrating a need for Lenders, Solicitors and Valuers to work together to bring all of the relevant information together at an early point in the process.
It particularly focusses on those leases that have a diminishing term of fewer than 80 years remaining, when marriage value becomes payable and, in many markets, a notable impact on market value begins.
In January 2021, our Valuations Division reported on the government’s commitment to leasehold reform in which they expressed their intention to set the calculation rates for the cost to extend a lease and to provide additional security in the form of a 990 year lease extension at zero ground rent to the leaseholder. At this time, the UK government has not yet produced a detailed timetable for these proposed reforms, however when the announcement is made, we anticipate an increase in the volume of our leasehold enfranchisement work.
In response, we welcome the proposed guidance which will ensure best practice is always adopted. For any advice or enquiries, please contact our team on [email protected].