Amendment 41

Part of Leasehold and Freehold Reform Bill - Committee (2nd Day) – in the House of Lords am 6:00 pm ar 24 Ebrill 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Lord Borwick Lord Borwick Ceidwadwyr 6:00, 24 Ebrill 2024

My Lords, I first declare my interest in my home, which is a long-leasehold property in London. It would not normally be declarable, but in the case of this Bill, this should be an exception. I also declare my interests as in the register in property companies, some of which are developing or have developed houses.

While I am not a great fan of a Conservative Government forcing freeholders to sell land to lease- holders, that principle sailed many years ago, and my Amendments 41, 43, 44 and 45 are designed to simplify the process in this Bill, reducing the costs for the department. They would speed up the process, perhaps by as much as 18 months, making it quicker and cheaper for the Government.

The present structure of the Bill has the price of the enfranchisement calculated by a system laid out in Schedule 4, under which the single most important factor is the deferment rate. I believe that the deferment rate is more important to the size of the actual price than the abolition of marriage value or any other factor.

What is the deferment rate? Some noble Lords believed that it must be in the Bill, but that is not so. The deferment rate, an interest rate by another name, is to be decided by the Secretary of State for DLUHC by way of statutory instrument. When will this be published? We do not know. Departments take a different time for SIs, and some take as long as five years. I have been criticised in the past for being acidic about the Department for Transport taking as long as five years to bring forward an SI on disability matters. The point is that it is certainly not instantaneous.

The interest rate is to be set by the Secretary of State at a date to be announced in due course. I could be rather difficult and quote my right honourable friend from another place, Michael Gove, on the subject of setting interest rates. He has been a supporter of the principle that interest rates should be set not by the Chancellor but by the independent Bank of England. For many years we have had that as a common policy between all parties, yet the Bill reverses that policy, at least in respect of the deferment rate.

The Minister has said that the rate will be a market rate for about 10 years, amended only by another SI. I am afraid that markets do not work like that—they alter fast and furiously. Over the last 10 years, the national rate has varied quite widely, between 0.1% and today’s 5.25%. Yet the department will fix it for the next 10 years, subject only to review at about a year’s notice. If the department was that good, it could make a fortune in the markets rather than create legislation. It cannot be done accurately, but the department still wants to do it.

I submit that my solution is better: there should be a variable rate, varying automatically as a simple margin over base rate. We can have a debate about what that margin should be. I have proposed 5% as a probing amendment. The leaseholder will, in almost all cases, be a worse credit risk than the freeholder, and I have asked several banks about their prospective price for a loan to finance an enfranchisement. I have had a variety of suggestions, as each price will of course depend on the particular circumstances, but a margin of 5% over base rates seems to be a reasonable guess.

There are occasions when leaseholders of flats in a block have enfranchised but one in 100, say, has not come up with their share. It is not unknown for the freeholder himself to provide the finance, and I am told that a margin of 5% over base is considered reasonable by freeholders when they are the lenders.

The first thing would be to agree that the rate should be variable, to take account of current financial circumstances. My Amendment 41 achieves this. The second thing is to agree that the margin on the rate over bank rate should reflect the leaseholder’s cost of borrowing, which is consistent with the rest of the terms of the Bill, but at present I am not entirely certain what that margin should be. I look forward to other noble Lords expressing their opinions.

Amendments 43 to 45 are either consequential or the equivalent measure for leaseholds to be extended rather than enfranchised. My noble friend Lord Forsyth, who is not in his place, was going to support this proposal and may put his name to it later, if it comes forward on Report.

The noble Lord, Lord Truscott, mentioned this amendment at an earlier stage. I did not know whether I should stand at that moment or wait. I hope he will forgive me for replying to his point now. The current rate set by the tribunal is 4.75% or 5%—the noble Earl, Lord Lytton, can immediately correct me if I am wrong—so 10.25% may be wrong, but so is 4.75% or 5%. The noble Lord, Lord Truscott, asked whether a return of 10.25% is available, but the question should be whether any lenders charge as much as 10.25%. I believe that they do, so his argument is actually an argument for variable rates. I beg to move my amendment.