Builders face lease­hold ban on new homes

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Fi­nally, ac­tion on new-builds – but where does that leave 100,000 lease­hold­ers, asks So­phie Christie

The Govern­ment has an­nounced a crack­down on leases on new houses that force fam­i­lies to pay ex­or­bi­tant ground rents and fees. Min­is­ters have un­veiled plans to ban builders from sell­ing fur­ther lease­hold houses in a bid to pro­tect buy­ers from ex­tor­tion­ate fu­ture costs or the pos­si­bil­ity that their prop­er­ties could be­come un­sellable.

An­nual ground rents – the charge the lease­holder has to pay the per­son or com­pany that owns the free­hold on a prop­erty – on flats could also be cut, fol­low­ing a back­lash over ex­ploita­tive con­tracts.

Sa­jid Javid, the Com­mu­ni­ties Sec­re­tary, said: “It’s clear that far too many new houses are be­ing built and sold as lease­holds, ex­ploit­ing home buy­ers with un­fair agree­ments and spi­ralling ground rents. Enough is enough. These prac­tices are un­just, un­nec­es­sary and need to stop.”

While flats have long been sold with leases, un­til re­cently it was very rare for houses to be of­fered on lease­hold terms. But, over the past decade, house­builders such as Tay­lor Wim­pey, Bo­vis, Per­sim­mon, Bell­way and Redrow re­alised they could in­crease their rev­enue by sell­ing on free­hold rights to third-party in­vestors at­tracted by the in­come from ground rents.

In the worst cases, the leases state that ground rents would dou­ble ev­ery decade. While this rep­re­sents an ex­cel­lent in­vest­ment for the free­holder, it has meant some home own­ers are find­ing their prop­er­ties are be­com­ing un­sellable.

In ad­di­tion, they claim they were promised they would be given the op­por­tu­nity to buy the free­hold, only to be told it had al­ready been sold. The prices quoted by the new free­holder, such as Homeground, a firm that runs the “Adri­atic” port­fo­lio of ground rents, are of­ten far more than home own­ers can af­ford to pay.

Katie Ken­drick, 37, was quoted £13,350 – 89 times the £150-a-year ground rent – by Homeground. When she bought the four-bed­room house with her hus­band in 2014 from Bell­way she un­der­stood the buy-out price would be around £4,500.

Ms Ken­drick, a nurse, said they had only de­cided to buy the prop­erty be­cause they were us­ing the Govern­ment’s Help to Buy scheme. De­signed for first-time buy­ers, one con­di­tion of the ini­tia­tive is the prop­erty must be newly built.

The Govern­ment has also said it will con­sider what it can do to help the hun­dreds of thou­sands of ex­ist­ing lease­hold­ers who are fac­ing “oner­ous” an­nual pay­ments.

Ex­actly how this group of home­own­ers, which is es­ti­mated to be at least 100,000 strong, will be as­sisted is un­clear.

Tele­graph Money has re­ported ex­ten­sively on their plight over the past cou­ple of years.

In one case, a Tay­lor or Wim­pey lease­holder dis­cov­ered ed the ground rent on her house,ouse, which be­gan at £295 a year, is set to dou­ble ev­ery decade, ecade, mean­ing that in 50 years’ ears’ time it will be £9,440 a year. ar.

The col­lec­tive back­lashk­lash from lease­hold buy­ers s prompted Tay­lor Wim­pey, mpey, the quoted builder, too agree a £130m deal to help them, say­ing: “In the event that we are not able to reach agree­ment with in­di­vid­ual free­hold­ers, we will con­tinue to pur­sue other av­enues to help our cus­tomers.” Two other buy­ers, 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. The prop­erty, built in the Eight­ies, ini­tially had ground rent of £75 a year, but in 2009 this was in­creased to 0.5pc of the prop­erty’s value, so £730 a year year. If the pr prop­erty’s value grows to £400,000, it means theth an­nual ground rent would rise to £2,0 £2,000 – a cost the Hame Hamers think would de­ter prospec­tive buyer buy­ers. In an­oth­era exam ex­am­ple re­lat­ing to a block of flats in Is­ling Is­ling­ton, north Londo Lon­don, ex­perts cal­cula cal­cu­lated that ground rents st start­ing at £250 per year per flat would grow over the term of the 999 year lease to £69 tril­lion, due to the ef­fects of com­pound­ing.

Se­bas­tian O’Kelly, of the Lease­hold Knowl­edge Part­ner­ship, a reg­is­tered char­ity which aims to pro­tect vul­ner­a­ble lease­hold­ers, said thou­sands of lease­hold flats have been sold with toxic ground-rent terms, which meant that “as many as 100,000 homes are un­sellable as a re­sult of this trick­ery”.

“In short, plc house­builders have been sys­tem­at­i­cally cheat­ing their own cus­tomers,” he said.

The char­ity es­ti­mates that house­builders are mak­ing around £300m-£500m from free­hold sales ev­ery year.

‘These prac­tices are un­just and need to stop’

Tele­graph Money has re­ported ex­ten­sively on home­own­ers’ plight

Katie Ken­drick­Ken feels she is be­ing heldhe to ran­som

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