Developers inflate house prices ahead of leasehold crackdown

Housebuilders appear to be cynically increasing the price of leasehold houses in advance of a government crackdown.

Land Registry figures show the average cost of a new leasehold house is increasing at a faster rate than comparable freehold properties. The average leasehold house currently costs £256,100, a 4.3pc rise on 2016, while freehold house prices have risen by only 2pc to £306,550.

Unlike flats, houses in Britain are generally purchased on a freehold basis. However, in recent years developers have sold increasing numbers of houses on leasehold terms. There are now 1.2 million leaseholder houses in England alone. Freeholders set and collect annual ground rents from leaseholders.

Some of Britain’s largest builders have boosted profits by selling on freeholds to third-party investors hungry for the rising income that ground rents provide.

In some cases homeowners have discovered small print that means ground rent payments will double every decade. Some lenders have now said they won’t give mortgages to people who buy properties on these terms, which has left some owners struggling to sell their properties.

The Government appears likely to announce a ban on the sale of leasehold houses following a consultation in July this year.

Lucy Pendleton, founder of James Pendleton, an estate agent, said: “Developers have realised the commercial value of leases and they have become a ticket for profiteers who are able to take advantage of buyers with little choice but to proceed to get their foot on the ladder,” she said.

Sebastian O’Kelly, of the Leasehold Knowledge Partnership, a charity, said its research also found initial prices for leasehold houses had risen.

But he said it was a “different story” after the sale of the homes.

“Nationwide, which won’t lend on them, thinks there are 100,000 leasehold houses and flats that are unsellable owing to onerous lease terms,” he added.

Mr O’Kelly said it was “tragic” that Help to Buy had fuelled the problem. Properties bought using the scheme must be newbuilds. Under new Government proposals, Help to Buy equity loans will be restricted to new houses on “acceptable terms”.

The Help to Buy scheme has fuelled demand for newbuild homes