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Leasehold homeowners are ‘overpaying to extend’ leases

Campaigning against clauses

Leaseholders are being charged extortionate fees to extend their leases according to the London School of Economics and Political Science (LSE) reports. LSE analysed data from 8,000 sales of leasehold properties, showing how the sale price varied depending on how much time was left on the lease.

The cost of extending a lease relies on a concept called relativity, which describes how the value of the home drops as the lease term runs down. The lower the relativity, the more it costs to extend the lease. Relativity is expressed as a percentage, and it’s the difference in value between a short lease and an effectively freehold home – such as one with a 999-year lease and low, fixed rents. The lower the relativity, the more it costs to extend the lease.

However, the LSE research suggests that the current practises underestimate the value of leases when there are under 70 years remaining. And that means that leaseholders who pay to extend their leases could be paying thousands of pounds too much.

Campaigning against clauses

It was recently revealed that some developers, including Taylor Wimpey, were selling homes with 999-year leases but adding clauses that doubled the ground rent every 10 years. That meant they incurred significant additional costs within just a few decades, affecting their sale value.