Pro­tec­tion at last for lease­hold home­buy­ers?

Many were let down by the Gov­ern­ment’s hous­ing white pa­per, but some are still prof­it­ing from Bri­tain’s hous­ing cri­sis. By Olivia Rudgard

The Daily Telegraph - Your Money - - FRONT PAGE -

The Gov­ern­ment has promised to step in to pro­tect lease­hold­ers from the prob­lems caused by high ground rents, ser­vice charges and un­fair terms.

While this week’s hous­ing white pa­per was branded dis­ap­point­ing on most counts, first-time buy­ers wel­comed the Gov­ern­ment’s com­mit­ment to ex­am­in­ing abuses of lease­hold.

Thou­sands of buy­ers, mostly older peo­ple who buy re­tire­ment homes and younger peo­ple who buy new­build starter homes or flats, have been af­fected by prob­lems in­clud­ing rapidly in­creas­ing ground rents and the of­ten pro­hib­i­tively high cost of buy­ing their free­hold.

First-time buy­ers Ed­ward and Mary Hamer (left) were shocked to find a clause in the lease of the flat they are buy­ing that could see the ground rent rocket to thou­sands of pounds within 15 years. They hope the clause can be rene­go­ti­ated, but may have to pull out of the pur­chase if not, leav­ing them £2,000 out of pocket.

The lon­gawaited hous­ing white pa­per was a let-down for many peo­ple. Stamp duty – an area where this news­pa­per has been campaigning for much­needed re­form – was left un­touched.

Older home­own­ers, hop­ing for some so­lu­tions to the dif­fi­cul­ties they face when try­ing to down­size to smaller prop­er­ties, were also dis­ap­pointed.

But the doc­u­ment did give hope to some.

Own­ers of lease­hold prop­erty

The Gov­ern­ment said it would re­form lease­hold prop­erty af­ter a cam­paign by char­i­ties and MPs to chal­lenge the ar­range­ments.

Tues­day’s hous­ing white pa­per promised a forth­com­ing con­sul­ta­tion on re­form to the lease­hold sys­tem to stop buy­ers be­ing ex­ploited.

Tele­graph Money has pre­vi­ously re­ported on the prob­lems faced by lease­hold buy­ers, which in­clude spi­ralling costs of buy­ing the free­hold from the free­holder, high ground rents and un­rea­son­able ser­vice charges.

Some homes were built with con­tracts that pro­vided for the ground rent to dou­ble ev­ery 25 years. In one ex­am­ple, ini­tial ground rent at £250 would rocket to £69tril­lion by the end of the 999-year lease.

Ed­ward and Mary Hamer dis­cov­ered only af­ter putting in an of­fer on their flat that a clause meant the ground rent could fast be­come un­af­ford­able.

They have not yet gone through with the pur­chase.

The prop­erty, built in the Eighties, ini­tially had ground rent of £75 a year, but in 2009 this in­creased to 0.5pc of the prop­erty’s value.

This means the cost is cur­rently £730 a year, based on the value of the flat at that point.

But the pur­chase price for the Hamers is £225,000, and they are con­cerned that by the next rent re­view, in 2030, the price could grow fur­ther, mean­ing ground rent would be­come pro­hib­i­tively ex­pen­sive and that they could find it hard to sell the flat.

For ex­am­ple, if the value grew to £400,000, the an­nual ground rent would be £2,000 – a cost that the Hamers think would de­ter prospec­tive buy­ers.

Mr Hamer, 34, a con­tracts man­ager, said he was un­aware of the prob­lems that high ground rent could cause be­fore be­gin­ning the process of buy­ing the flat.

“I have a law de­gree, and I knew that there were leases that could be prob­lem­atic in some cases, but I thought that un­less you had a short lease it wasn’t a prob­lem. I didn’t know and never con­sid­ered that ground rent could make it hard for peo­ple to sell.”

The Hamers have put an of­fer in on the flat, but may with­draw if the ground rent is­sue can­not be rene­go­ti­ated. Their seller is in dis­cus­sions with the free­holder over whether this is pos­si­ble.

The cou­ple ini­tially thought the free­hold was owned by house­builder Sum­mit Homes, but a spokesper­son for the now­dor­mant com­pany said the free­hold had been sold on some time ago. Even­tu­ally the Hamers found that the free­hold was in fact owned by in­vest­ment com­pany Sin­clair Gar­dens In­vest­ments. Ac­cord­ing to Land Reg­istry doc­u­ments the firm, which in­vests in ground rents, bought the free­hold in 1997.

Free­hold in­vestors en­joy reg­u­lar in­come from guar­an­teed ground rent and are then able to make ad­di­tional money by charg­ing for lease ex­ten­sions.

The com­pany did not re­spond to a re­quest for com­ment.

In the white pa­per the Gov­ern­ment said: “Ground rents with short re­view pe­ri­ods and the po­ten­tial to in­crease sig­nif­i­cantly through­out the lease pe­riod may not be of­fer­ing a fair deal.

“We are ab­so­lutely deter­mined to ad­dress this. We will there­fore con­sult on a range of mea­sures to tackle all un­fair and un­rea­son­able abuses of lease­hold.” Yes­ter­year’s pa­per: this flat, un­touched for decades, was spot­ted by Sharon Hut­ton

The chronic hous­ing short­age means there’s still cash to be made

When Sharon Hut­ton vis­ited a friend in Peck­ham, south-east Lon­don, late last year, she spot­ted a de­cid­edly derelict prop­erty in what was oth­er­wise a well-main­tained block in an up-and-com­ing area. Ms Hut­ton, from Welling in Kent, re­called de­tails of a prop­erty de­vel­oper pre­pared to pay ea­gleeyed prop­erty spot­ters for such finds. So she re­ported the prop­erty to YouSpotProp­ and was given a £20 voucher for her trou­ble. The firm has paid more than 2,100 sim­i­lar spot­ters in this way since it launched in 2014.

What Ms Hut­ton didn’t ex­pect, how­ever, was that she would get the rarer prize of 1pc of the pur­chase price if YouSpotProp­erty ac­tu­ally found the owner, ne­go­ti­ated a deal and com­pleted.

It is es­ti­mated that there are more than 21,000 longterm va­cant and derelict prop­er­ties in Lon­don. The na­tion­wide fig­ure is nearer 600,000. The Gov­ern­ment is un­der pres­sure to bet­ter utilise this stock – but in the mean­time de­vel­op­ers such as YouSpotProp­erty are cap­i­tal­is­ing on the phe­nom­e­non. In many cases the prop­er­ties are stuck in pro­bate pro­cesses or have been in­her­ited by peo­ple who can­not ren­o­vate or man­age them.

YouSpotProp­ is cur­rently re­search­ing a caseload of 3,000 empty and derelict prop­er­ties around Lon­don. The firm’s Luke Thur­low (pic­tured to the right) said: “We in­ves­ti­gated this prop­erty and dis­cov­ered that the owner had died and it had been in­her­ited by her niece.

“The flat had been kept by the orig­i­nal owner for 50 years, it had not been oc­cu­pied for a num­ber of years be­fore her death and sub­se­quently had fallen into such a state of dis­re­pair it be­came too dif­fi­cult for the niece to man­age – the prob­lem seemed too big to solve.”

It is thought the prop­erty has been largely un­touched since the Fifties.

It was bought for £350,000, with 1pc of that sum be­ing paid to Ms Hut­ton. It will be ren­o­vated and let within eight weeks, the firm said.

She is the 23rd per­son to be re­warded through this ar­range­ment.

Anal­y­sis of pub­lic hous­ing data pub­lished ahead of the white pa­per found that the num­ber of un­oc­cu­pied homes in Bri­tain had reached the high­est level in 20 years, rais­ing ques­tions over the num­ber of new houses re­quired.

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