Freehold Premium Gap Reaches Eight Year High

The gap between the price paid for freehold and leasehold property has reached the widest margin since the property market recovery in 2011.

According to HM Land Registry data, analysed by estates agents Benham and Reeves, the difference between a freehold property and equivalent leasehold property is now 12.3%.

Although this percentage difference is 2.1% lower when compared to the widest gulf of 14.3% in freehold and leasehold property types in 2011, it still represents the widest gap in recent memory and highlights the clear distrust in leasehold property following the mis-selling scandals of recent years.

From 2011 to 2014, the gap dropped each year until it was closed to just a 5% difference.

However, as pernicious ground rents and service fees gained notoriety, the gap started opening again. In 2015, a freehold property cost 6.9% more than a similar leasehold title.

London properties offer the largest disparity between prices with a freehold title in Camden carrying a 227% premium when compared with a leasehold counterpart.

A Kensington and Chelsea freehold carries a premium of 190% with asking prices of £4.4 million usurping the leasehold’s asking price of £1.5 million in the area.

Whilst the average lease length of leasehold property is thought to be at an eight year low which is impacting on the average asking price, the research suggests that many buyers not only prefer the security of freehold, they are becoming averse to leasehold ownership types in the current climate.

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

“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 its highest levels in nearly a decade and will no doubt continue to do so.”

Will this gap only widen further given the leasehold scandal nightmares reported in the press recently? Or, with Government interventions already set in motion to protect buyers, will the gap close as market confidence increases?

Today's Conveyancer