Decline in interest in Leasehold properties - why is this?

Leasehold homes, especially flats, have traditionally been popular among first-time buyers looking to get onto the property ladder and investor landlords looking for good yields. However, recent trends indicate a shift in buyer preferences, with many first-time purchasers increasingly favouring freehold homes. This change is influenced by several factors, including rising mortgage rates, upcoming renter reforms, and a growing aversion to the complexities of leasehold ownership.

1. Mortgage rates are still a challenge

Although lenders like Barclays and Nationwide have recently reduced their mortgage rates following the Bank of England’s decision to reduce the base rate to 4.25%, borrowing remains more expensive than in previous years. For first-time buyers, higher mortgage payments mean tighter budgets. Every pound matters, and when faced with the ongoing costs tied to leasehold ownership (like ground rent and service charges), many are deciding it simply isn’t worth it.

2. Leasehold concerns are driving buyers away

Leasehold ownership has come under increasing scrutiny due to escalating service charges and complex ownership structures. In 2024, the average service charge for flats in England and Wales reached £2,300 annually, with some costs increasing by up to 92% over five years. These rising expenses, coupled with the challenges of extending leases and dealing with freeholders, have made leasehold properties less appealing.

Although the Leasehold and Freehold Reform Act 2024 aimed to address some of these issues by simplifying the process of extending leases and increasing transparency, many first-time buyers remain wary. The reforms did not eliminate ground rents for existing leases, and implementation delays have further contributed to uncertainty.

3. Renter reforms are reducing investor confidence

The proposed Renters' Rights Bill 2024 is set to introduce sweeping changes to the private rental sector, including the abolition of Section 21 "no-fault" evictions and new limits on rent increases. While these reforms aim to improve tenant security and housing standards, they’re also having unintended consequences, particularly for property investors.

Faced with tighter regulations and the potential for reduced flexibility, many landlords are reconsidering their portfolios. Leasehold flats, which often come with high service charges and limited control over communal maintenance, are becoming increasingly unattractive to investors.

As a result, some landlords are exiting the market altogether, reducing the availability of leasehold properties. Others are less inclined to invest in leaseholds going forward, especially when profit margins are being squeezed by both regulatory change and rising borrowing costs.

This softening in investor demand is contributing to a slowdown at the lower end of the market—where leasehold flats often sit—causing these properties to linger longer and, in some cases, drop in value.

4. A shift in buyer preferences

First-time buyers are increasingly prioritising freehold homes to avoid the complications associated with leaseholds. Freehold ownership offers complete control over the property without the burden of service charges, ground rents, or lease extensions. This autonomy is particularly appealing in a market where financial predictability is crucial.

Additionally, freehold properties are often viewed as better long-term investments, providing greater flexibility for future modifications and sales. This perception further drives demand away from leasehold options.

5. Recent statistics on leasehold sales

Recent data highlights the declining interest in leasehold properties:

• In 2022–23, there were an estimated 4.77 million leasehold dwellings in England, accounting for 19% of the housing stock. This represents a decrease from 4.98 million (20%) in 2021–22. (gov.uk)

• Leasehold transactions accounted for 22.78% of all property transactions in England and Wales in 2024, with freehold transactions making up 77.22%. (soldhouseprices.co.uk)

• The proportion of new-build properties sold as leasehold dropped significantly to less than 1% by December 2022, down from a peak of 15% in 2016. (The Freehold Collective)

• In London, leasehold properties accounted for 36% of the housing stock in 2024. (Wikipedia)

These statistics underscore the shifting dynamics in the UK housing market, with a clear trend away from leasehold properties.

“While flats will always appeal to some buyers, we’ve really seen viewing levels drop significantly on the ground. It’s wise to brace yourself for the journey—selling a leasehold property in the current market is unlikely to happen overnight.” Michaela Sanders, Director of Heart & Home.

Final thoughts

The decline in leasehold demand isn’t just about money—it’s about confidence. Today’s buyers are more informed and more cautious. They’re not just buying a home; they’re investing in their future.

To restore faith in the leasehold system, deeper reforms and greater transparency are still needed. Until then, it’s likely we’ll continue to see the lower end of the market, particularly leasehold flats, slow down.

Written by

Abby Wheeler

Director

Heart & Home