Housebuilders face leasehold scrutiny as watchdog steps in
THE competition watchdog has accused four major housebuilders of misleading leasehold buyers and of potential mis-selling in the housing market.
The Competition and Markets Authority has written to Barratt Developments, Countryside Properties, Persimmon and Taylor Wimpey after finding “troubling evidence of potentially unfair terms”. The regulator warned that some leasehold buyers were being hit with ground rents that doubled every decade, while others were wrongly told that they were unable to buy the freehold on a site.
It added that developers had not clearly explained what ground rent was to some buyers and whether it increased over time.
Andrea Coscelli, the CMA’S chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of home buyers. That’s why we’ve launched today’s enforcement action. Everyone involved in selling leasehold homes should take note: if our investigation demonstrates there has been mis-selling or unfair contract terms, these will not be tolerated.”
The CMA is also reviewing the potential use of unfair sales tactics, including unnecessarily short deadlines to complete purchases.
Anna Bailey, chief executive of advice firm the Leasehold Solutions Group, said: “There has never been any justification for selling new houses as leasehold; it has simply been a way for housebuilders to enhance their profits at the expense of buyers.
“We have always said that the only way to address the practice was by positive action, so we are delighted that the CMA is finally showing its teeth.”
Some industry sources questioned why only four companies were targeted, with smaller landowners and other firms not named allegedly engaged in similar practices.
Barratt, Taylor Wimpey, Countryside and Persimmon all affirmed their commitment to co-operate fully with the CMA.
Here’s something you don’t see very often these days: no, not commuters, and not our Prime Minister showing real leadership. Those things will have to wait, the latter perhaps forever. Still, this is almost as rare: an investigation from the Competition and Markets Authority that might have legs, or at least one that real people actually care about. A potential mis-selling scandal in the housebuilding industry is something to take seriously, unlike some of the watchdog’s recent probes.
Its laughable decision to get in a tizz about JD Sports’s takeover of Footasylum, a chain with less than 5pc of the market, that was heading for the great trainer emporium in the sky, obviously gets a special mention.
After all, that was apparently deemed to be of far more concern than the vast influence that Nike and Adidas exert over the market.
And, even when it alights on the right target, there’s always a chance that the watchdog will get it wrong anyway. Witness the double U-turn that resulted in Amazon being allowed to invest in Deliveroo even though the regulator conceded it was wrong to say the delivery firm would go under without the tech giant’s backing.
But hey, why not wave it through anyway and allow Amazon to get its teeth into another fast-growing sector through the backdoor?
A proper investigation into the big housebuilders offers the chance for the bumbling CMA to salvage its reputation. It is an industry that is fully deserving of further scrutiny.
No other sector of the economy has had it quite so good over the last decade. Housebuilding is similar to high street banking in that everyone is making fantastic money, much of it on the back of generous taxpayer support.
Fuelled by the Government’s Help to Buy scheme, housebuilders have been generating bigger profits every year, sending share prices through the roof, and funding massive payouts to investors, as well as top bosses, like the outrageous £75m bonus for Persimmon’s Jeff Fairburn for selling a few thousand bog-standard, boxcutter homes every year.
This week, Barratt Homes, one of those named in the CMA’S dossier of wrongdoing, revealed it was still able to make margins of more than 14pc even at the height of the Covid crisis.
The Chancellor’s stamp duty holiday together with the coronavirus mortgage payment holiday will prolong the party.
And yet despite this extraordinary decade-long bonanza built on massive state subsidies, if the CMA is right, customers are being taken for mugs left, right and centre.
Indeed, it was already clear from the independent probe that Persimmon sanctioned into its own practices in the wake of the bonus storm that buyers were being short-changed.
The review found poor-quality workmanship and accused the firm of putting profit before customers.
The CMA has rightly zeroed in on the sale of leasehold properties, an area that consumer campaign groups have nicknamed “fleecehold” and described as the next PPI scandal.
It claims to have uncovered “troubling evidence” that buyers have either ended up paying huge sums in ground rents or to buy the freehold for their home at a later date.
Four of the big housebuilders, Persimmon, Barratt, Countryside and Taylor Wimpey, are in its sights, though the watchdog is careful to point out that they aren’t necessarily guilty of malpractice.
Still, it raises an important wider point: there will always be examples of sharp practices in business but you would expect to find them in the sectors that are struggling.
Instead, here it is in an industry that has never had it better and yet it would appear that customers are routinely being taken for a ride.
Perhaps the lesson is that people are people and they will always try to pull a fast one, regardless of how much money they are making. Either way, the regulator is finally on to something.