The sale of new-build homes under leasehold instead of freehold could be banned, under new proposals designed to end the exploitation of would-be buyers.
People buying homes sold under leasehold, in which the owner buys only the right to occupy and use a property not ownership of the land itself, regularly face unacceptable fees and costs from the landowner, making them hard to sell. Communities Secretary Sajid Javid has said he wants to put a stop to these “unjust” and “unecessary” practises.
Under new proposals, the payment of “ground rents” on new build homes could be banned completely.
Leasehold agreements usually apply to flats and apartments, where owners do not own the land on which their home is built, and vary in length from 99 to 999 years. But more than a quarter of the four million Brits who live in leasehold properties, live in houses.
The proposals, which are subject to an eight-week consultation, aim to make future leases fairer by reducing ground rents so they “relate to real costs incurred”.
The plans include measures to close legal loopholes to protect leaseholders who can be left vulnerable to possession orders, as well as changing the rules on Help to Buy equity loans so they can only be used for “new built houses on acceptable terms”.
Mr Javid 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.
“Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.”
Sir Peter Bottomley, co-chair of the all-party parliamentary group on leasehold reform, welcomed the crackdown but said action should be taken to help those with unfair existing leases.
The Conservative MP told the Press Association: “Having control and hopefully abolition of unjustified and unnecessary fees, which would apply to existing leasehold as well as future ones, then I would argue that if not covered by existing law, there should be action taken by Parliament so that unfair existing terms or existing leases can be struck out as unreasonable.”
Sir Peter, who said responsible freeholders had “nothing to fear” from the proposals, added: “It sounds as though the Government is going beyond what was in any party’s manifesto – this will be welcomed by everyone concerned for the wellbeing and welfare of leaseholders and there are more steps needed to make the dispute system work fairly and at very low cost.”
Paula Higgins, chief executive of the HomeOwners Alliance, had urged action on behalf of leaseholders in May, in response to a survey by the organisation which found leaseholding had become the number one concern of homeowners.
“Unscrupulous players within the industry have turned what has been a form of tenure for centuries into a money-grabbing scheme that has left thousands of buyers across the country trapped in properties that are now essentially unsaleable.
“Leasehold houses, doubling of ground rents and unfair clauses are leaving homeowners in a nightmare situation and the government is clearly not treating the issue with the severity it deserves. These people need help and they need it now.”
Leaseholders pay fees to the freeholder – who could be the property developer or the local authority in the case of homes formerly owned by the council – who retains legal ownership of the ground on which the leaseholder’s home is built.
Flats have traditionally been sold on a leasehold basis, but there are now 1.2 million houses that have leases, including around 170,000 detached homes.
More than 10,000 new leasehold houses have been sold through Help to Buy since its launch in 2013.
In 1996, just 22 per cent of new builds were leaseholds, but by 2015, this number had leapt to 43 per cent.
The Leasehold Knowledge Partnership campaign group estimates building firms make £300 million to £500 million a year from the sale of ground rent agreements to investors. Read their article following the governments announcement of the consultation https://www.leaseholdknowledge.com/government-ban-leasehold-houses-set-ground-rents-low-zero