Last week’s announcement that the government would look to ban new-build houses being sold as leaseholds has certainly stirred up strong emotions.
Ground rent doubling clauses – which are at the centre of the argument – have been described as everything from a ‘scandal’ to ‘the great British leasehold rip-off’. Under new proposals, the government would see this practice banned, but have you ever had an issue with the leasehold on your property?
What’s the problem?
The issue primarily surrounds housebuilders inserting ground rent ‘doubling clauses’ into agreements on new-build houses. This can render the properties essentially worthless in the long run.
As we reported last week, a ground rent that stands at £250 a year now could, in theory, cost £8m a year after 150 years, a possibility that can make a property impossible to sell on.
Another issue is unclear freehold ownership. In recent years, developers have been known to sell off the freehold of properties to investment companies without formally letting the leaseholder know. Legally, this is allowed, but for many homebuyers, it’s resulted in escalating costs and frightening quotes to buy their freehold further down the line.
A new proposal by the government seeks to tackle these issues by outlawing the sale of new-build houses as leaseholds.
Those defending housebuilders, however, see it as a way of them making schemes ‘financially justifiable’, or offer an argument that there’s no such thing as ‘pure ownership’.
How will this affect you?
The government’s crackdown on leaseholds is likely to affect anyone involved in the buying or selling of leaseholds, but for some, it may be little consolation.
Homebuyers While the government is planning to put a stop to ‘unfair leasehold practices’, it’s unlikely to help those buying a leasehold home right now. We’ve already seen buyers have their mortgage agreements withdrawn as their lender has been alerted to a ‘doubling clause’.
Existing leaseholders The biggest victims are existing leaseholders, who bought their homes a few years ago. People already trapped have reported sizable remortgaging fees, over-the-top charges for making structural changes and unfair quotes to purchase their freehold. It remains to be seen whether the government will intervene to help existing leaseholders.
Conveyancers Conveyancers could be in hot water for not offering sufficient warning to people who have been stung by the doubling clauses.
Investors Depending on how the government decides to act, there could be ramifications for people who unknowingly have freehold and ground rent investments as part of the pensions or portfolios. Major freehold investors could also get caught up.
Developers As well as losing out on the fruits of selling freeholds on new-build homes, housebuilders could have to set up significant compensation pots for existing leaseholders who have faced problems. Taylor Wimpey has already addressed this by setting up a £130m fund, but some have warned that this is only the tip of the iceberg.
Mortgage lenders So far, Nationwide has already pledged that it won’t rubber-stamp mortgages on properties with unfair leasehold clauses, and other lenders are likely to come under increasing pressure to follow suit should the government’s proposals go ahead.
Over to you
There’s clearly a great deal of concern about these practices, but at a lower level there’s also bemusement about the ground rent system in general.
From sinking funds and collective enfranchisement to peppercorn rents, there’s an argument that the maze that is the leasehold system needs top-down reform.
If you’ve bought or are buying a leasehold home and have experienced problems or think you might be affected, get involved in the conversation below or drop us an email at email@example.com