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 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 YouSpotProperty.com 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.
YouSpotProperty.com 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.