/ Home & Energy

Have you had an issue with the leasehold on your home?

new build

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 We’ve already seen buyers have their mortgage agreements withdrawn as their lender has been alerted to a ‘doubling clause’.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 money-letters@which.co.uk

Comments
Guest
Patrick Taylor says:
2 August 2017

Rather late to the problem for a consumer organisation of the size of Which? I would find it rather hard to say anything else other than to criticise the charities absence from this area for so long.

However does this mean that Council of the charity are going to support leasehold reform? Or other bold steps.?

From the Scottish experience in 2007-12 it is a shame lessons were not drawn then as applicable to the English legal system. The same national builders being involved in sharp practices aided and abetted by a system were the solicitors/conveyancers were on builders panels being fed a stream of innocent buyers.

It is a huge scandal and I trust the Consumers Association , the owners of Which? will get deeply involved.

Guest

The article did not make any reference to the situation of leasehold properties in combined developments like apartment blocks and maisonettes. Although it consistently referred to new build houses it is worth making clear that the same government action will not all apply to combined developments. It might in respect of a ban on periodic ground rent doubling clauses [or other automatic ground rent escalators] and on selling freeholds without notifying the leaseholders, but there is no intention so far as I can see to stop the building and selling of flats on leases; this is necessary to ensure there is adequate control over the common parts of such buildings and over internal alterations that might adversely affect other leaseholders.

A point not mentioned is that the doubling clauses and the selling of freeholds to investment companies had a potential adverse impact on the tenants of leaseholders since the higher ground rents would have to be recovered through the monthly rents. They should be spared this implication in future.

I do not see the point of criticising Which? for not addressing this problem earlier. They can’t do everything at once. The government has now pronounced and action is in train – the notion that Which?’s intervention would have prompted an earlier resolution is fanciful.

I agree that lessons might have been learned sooner but the introduction of leaseholds into new residential developments made it possible to offer houses at lower prices where otherwise they might not have been affordable. This gave the market a temporary boost but it was clearly stoking up problems for the future, not just in terms of the escalating ground rents but the difficulty in selling and buying the houses at a later time because of mortgage eligibility constraints. It is worrying that property professionals and advisers were not drawing attention to this and that mortgagees were not alerting their applicants to the implications of the clauses. It makes you wonder whether they were paying attention themselves, as it affected their asset valuations, or were in cahoots with the builders/developers.

Guest
Kev says:
4 August 2017

I cannot see how houses were more affordable under leasehold. The original landowner sold the land to say Wimpey so it was all freehold owned by them. Wimpey chose to make some homes leasehold. The price difference was £3000 in many cases. So why did they bother? So they could sell them on to investment companies. The buyers did not know they could do that. It is all a scam.

Guest

Fortunately I am not affected. As you should normally have a solicitor acting on your behalf are they not liable if they have not drawn your attention to the consequences of an escalating lease clause? Could they be sued?

I wonder whether Which? mortgage providers have encountered this problem when arranging mortgages for their clients.

Guest

My thoughts entirely, Malcolm. This was suggested in the Intro in the paragraph starting “Conveyancers”.

Guest

But it did not indicate whether the conveyancers had any liability. That seems crucial. Otherwise we seem to be relying on the goodwill of Taylor Wimpey and the like to compensate purchasers and buy back the leases.

Selling on leaseholds to profiteers is very reminiscent of Private Finance Initiatives. Local authorities, for example, could have capital work done by a contractor – a new raod lighting installation say – but instead of paying for it they would pay an annual charge for, say 25 years for the capital, maintenance and running costs. The contractor would finance it with a commercial lender. These contracts could become good money earners, so contractors would sell them on to third parties who had no connection with the work but simply set out to make cash. Charging £300 to change a light bulb allowed by incompetence in the drafting of the contract.

Guest

“Expedience” should be added to the list of deadly sins. Short-term gains for long-term costs. It should not be permissible to trade in financial instruments without the other party’s agreement. In the example you cited it will be the future council tax payers who suffer, not the members of the authority that did the deal.

Guest
Patrick Taylor says:
2 August 2017

According to sources the conveyancers/solicitors are likely to be sued [ and successfully] if they did not explain the import of the 10 year doubling clauses. However early days.

Any sensible solicitor would have explained the clauses and if the client still wished to buy then get the clients signature on a note rejecting his advice.