1 in 7 Help to Buy owners are locked into leaseholds
Alert over small print putting taxpayer cash at risk in ‘worst scandal since PPI’
DEVELOPERS are abusing the Government’s flagship Help to Buy scheme by selling new-build homes with punishing leases.
By the end of last year, leasehold houses made up 15 per cent of properties in the taxpayer-funded project.
But the arrangement means buyers do not own their home outright and are forced to pay yearly ground rent to the freeholder – with some fees doubling every decade.
Developers often sell the con- tracts to investors who then charge families huge sums to buy the freeholds back.
It is now feared the taxpayer could lose out because the onerous terms make it almost impos- sible to sell leasehold houses on – leading to a slump in prices.
The growing scandal has been branded ‘the PPI of the house building industry’ – a reference to the mis-selling of payment protection insurance by the banks.
A Tory Mp last night said families are being ‘shafted, ripped off and conned’ by developers – with many victims being desperate first-time buyers who turn to Help to Buy for assistance.
More than 10,000 new leasehold houses – one in nine of the 95,639 total – have been sold through the controversial mortgage support programme since it was launched four years ago. The figure includes nearly 5,000 last year alone. Tradi- tionally, leasehold status was restricted to flats – but increasing numbers of houses are now being built on this basis.
Families who use the Help to Buy scheme to get a mortgage need to raise a deposit of just 5 per cent while the Government puts up 20 per cent of the value of the newlybuilt property. When the property is sold, the homeowner has to repay 20 per cent of the sale price, which means if the value falls the Government does not get its money back.
The scale of the problem is underlined by the Government’s own figures showing taxpayers’ money is increasingly being used to subsidise the sale of new houses with leases through Help to Buy.
Figures from the Department for Communities and local Government show the number of leasehold houses sold through Help to Buy has rocketed since the scheme was launched four years ago. sales of leasehold houses leapt from 781 in 2013 – when it represented less than 7 per cent of new homes sold through the scheme – to 4,832 in 2016. By last year it had reached 15 per cent.
some ground rents double every decade – hammering household finances and making the property almost impossible to sell in future.
Families can attempt to buy the freehold, but if it has been sold by the developer to an outside investor, the new owner may hold them to ransom by demanding a huge premium.
Campaigner sebastian o’Kelly, who runs the leasehold Knowledge partnership, said: ‘ What housebuilders are doing is cheating their customers who simply want a home by creating an investment asset – the freehold – at their expense. This is then sold on to investment companies.
‘These families cannot sell their homes. Any solicitor acting for a potential buyer will see that the terms of the lease are too onerous and advise their client not to buy. The original purchasers are stuck.
‘The housebuilders are also having a laugh with us, the taxpayers, in palming off these flawed products which are sold to buyers on the Help to Buy scheme.’
Justin Madders, labour Mp for ellesmere port and Neston, where the use of leasehold is widespread, described the scandal as ‘the PPI of the house building industry’.
He said: ‘There is no need for most of the houses built in my constituency to be sold on a leasehold basis.’ Tory Mp Andrew selous added: ‘people are really, really angry about this. They know they are being shafted and they don’t like it.
‘They are being ripped off. They are being conned.
‘It is an appalling way to treat ordinary people who worked really hard to afford their first home.’
Communities secretary sajid Javid this week criticised the ‘practically feudal practices’ of developers who build new houses and sell them as leasehold and is planning a clampdown.
A Government spokesman said: ‘our recent housing White paper is clear that we will consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold.’
‘They are being ripped off’