Builders face leasehold ban on new homes
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