Thousands trapped in homes they can’t sell
‘Legalised extortion’
FAMILIES in homes with ‘toxic’ leaseholds are becoming trapped in ‘ unmortgageable’ homes because banks are refusing to offer loans to would-be buyers.
Lenders are rejecting loan applications where leases are deemed too short or ground rents too high.
Experts warned thousands of homeowners could be left stuck in properties that are effectively worthless because no one is able to buy them.
Some of the biggest lenders, including Nationwide and HSBC, will not approve mortgages on leasehold homes with ‘unreasonable’ rapidly increasing ground rents. Lloyds Banking Group, which owns Halifax and Bank of Scotland, said ‘escalating ground rent clauses can be problematic’ for mortgage applicants.
Figures from the Department for Communities and Local Government this week revealed four million private homes in England are leasehold – or one in five.
While 2.8million of these are flats, which have traditionally been leasehold, there are now 1.2million houses with leases – meaning the buyer does not own the property outright and must pay an annual fee to the freeholder.
In 1996, only 22 per cent of newbuilds were leasehold. By 2015, this had increased to 43 per cent. Sebastian O’Kelly, of campaigners Leasehold Knowledge Partnership, said: ‘It looks like developers in their greed to load ground rents have now set off a full-scale housing crisis. If mortgage companies won’t lend on leases with ground rent terms such as these … thousands of properties are effectively blighted.
‘What a triumph for our venal, greedy residential property sector.’
A letter sent last month by HSBC’s mortgages department to a would-be house buyer, who does not want to be named, explained why the bank would not extend a loan. ‘We cannot proceed on this basis,’ it reads. ‘The ground rent is acceptable at £200 but the escalating element needs to be removed.’
Solicitors are also advising would-be buyers to pull out of deals involving homes with onerous leases.
Dan and Clair Scott bought their newbuild three-bedroom house in Bolton, from developer Taylor Wimpey, for £200,000 in 2011 – and put it on the market last year.
But the buyer pulled out at the last minute when their solicitor spotted that the ground rent would double every ten years for the next 50 years – rising from £295 a year now to £9,440 by 2060.
Mrs Scott, 30, said: ‘It’s devastating. As young buyers you trust a firm like Taylor Wimpey. But now we’re trapped in this vicious arrangement … I’m terri- fied we’ll never be able to sell.’ Communities Secretary Sajid Javid last month attacked the ‘feudal practices’ of developers who sell newbuild houses with leases. It was revealed yesterday that he is drawing up plans that could see firms banned from doing so.
David Hollingworth, of London and Country Mortgages, Britain’s biggest mortgage broker, said: ‘It’s crucial that buyers understand the lease conditions and particularly those clauses that could later be viewed as toxic.
‘Clauses that see ground rent double every ten years are posing a significant threat … there is a real risk prospective buyers will be put off by the escalating cost … lenders or their valuer may deem the property unmortgageable.
‘Anything that affects the ability to market and sell a property to as broad a market as possible will ring alarm bells for lenders.’
Labour housing spokesman John Healey said the sale of leasehold homes with soaring ground rents was ‘little better than legalised extortion’.
Paula Higgins, of the HomeOwners Alliance, said: ‘It is telling that it is now the banks, not government, who are protecting home buyers from being abused by the leasehold system.’
Bernard Clarke, of the Council of Mortgage Lenders, said: ‘Some leaseholders are now seeing rapidly rising ground rents. This is a concern for lenders as it could affect both mortgage affordability and future prospects for selling the property … reports of an increasing number of leasehold houses are another concern.’