Leasehold scandal pushes freehold house price premiums to an 8 year high

Research by letting and estate agent, Benham and Reeves, has found that the price premium being paid for a freehold property by homebuyers in England and Wales is at its highest since 2011.

Using property transaction data, Benham and Reeves found that the price gap between a leasehold and freehold property was 14.3% in 2011, dropping consistently year on year to just 5% in 2014.

It then increased to 6.9% in 2015 and stayed at around this level before increasing last year in the wake of the leasehold scandal. So far in 2019, the gap has widened from 8.3% in 2018 to a notable 12.3% this year.

Freehold has historically been the preferred method of buying as the home buyer owns the property and the land it sits on and isn’t required to pay any ground rent of service charges. It also means you pay lower conveyancing costs when buying.

However, 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 high-end market, with Camden home to the highest with a 227% increase!

In Kensington and Chelsea, the average price paid for a freehold property is £4.4m, 190% higher than the average price paid for a leasehold (£1.5m).

Homebuyers in Elmbridge are paying 159% more for a freehold, the highest outside of London, followed by the City of Westminster, Islington and Hammersmith and Fulham.

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%, with South Bucks also ranking in the top 10 with a 92% freehold property premium.

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% and 4% higher than freeholds.

Director of Benham and Reeves, Marc von Grundherr, commented: 

“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.

A freehold is always the preferable path when buying but unfortunately, not everyone can secure themselves a foot on the freehold ladder, either due to a lack of stock or the additional financial cost.”