From an investor perspective, the first thing to recognise is this: the legislation marks a notable shift in power and cost in the leasehold/freehold relationship. While much of the Act’s detailed implementation remains pending, a number of provisions are already in force. 

Amongst those already implemented, the most notable provision is the removal of the ‘two-year ownership’ requirement — under which a newly-registered leaseholder had to wait two years before exercising the statutory right to extend the lease or buy the freehold. Now, new leaseholders can make a formal application to extend the lease or purchase the freehold as soon as they have purchased the property and Land Registry has been updated.

But the more transformative parts lie ahead. For example, the standard lease extension term for houses and flats is set to increase to 990 years. Moreover, the abolition of ‘marriage value’ — the additional premium a leaseholder pays when extending a short lease — will make it significantly cheaper to do so. A ban (or at least severe restriction) on the granting of new leasehold houses is expected and, finally, improved transparency and challenge regimes for service charges and estate management fees are to be rolled out via consultation.

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For property investors, these reforms create opportunity:

1. Quicker wins

Purchasing a short-lease property and extending the lease is a great way to immediately increase its value. No longer having to wait for the two-year period to pursue the statutory route of extending the lease means these returns can be achieved more quickly. It also presents an opportunity for bridging lenders, as it is now achievable for leases to be extended within a bridging loan’s short term.

That said, many investors will be biding their time until marriage value has been abolished, as this will reduce the cost of premiums significantly. I expect there to be a sharp increase in short-lease deals at this point.

2. The refurbishment opportunity

Savvy investors will see the value in purchasing short-lease properties that are also in need of renovation. Coupling a lease extension with a refurbishment could see investors adding significant value to a property in a relatively short timeframe.

Octane have appetite to lend on short-lease properties, and we can build in drawdown facilities to cover 100% of refurbishment and lease extension. This reduces the cash input for the client and allows them to unlock the property’s value, benefiting at the point of exit.

3. More exit options

Once the standard lease extension term is extended to 990 years, this will open the door to more exit options for clients purchasing short-lease properties on a bridging loan. This will give investors the chance to access more mainstream buy-to-let lenders and better rates — improving their net returns once the property is tenanted and the bridging loan has been refinanced.

Of course there are caveats: many key reforms are still subject to secondary legislation, so exact timing is uncertain.  Also, existing leasehold stock still carries legacy risk (high ground rents, short leases, onerous service charges). But, in my view, these are manageable risks within the context of the opportunity.

In short: this legislative change shifts the dynamics in favour of leaseholders. For property investors — and bridging lenders able to serve them — it presents an opportunity in the years ahead.