LEASEHOLD homeowners have been left “trapped in unsellable and unmortgageable homes” a damning new report by MPs has found.
It has called for an investigation into mis-selling and for compensation to be paid to those who’ve been deliberately misled.
Getty – Contributor New build homes are often sold on a leasehold basis
The Housing, Communities and Local Government Committee says homeowners in England and Wales are being ripped-off by developers, freeholders and management agents.
It found that leasehold homeowners are often stung with large annual bills to rent the ground their property is built on and in some cases these fees are making homes unsellable and unmortgageable.
Leasehold homeowners are also having to stump up for high service charges and one-off bills, which often exceed the actual cost of the work.
Other issues include homeowners being unable to carry out work on their property and unreasonable prices being charged to extend leases.
Committee Chair, Clive Betts MP said: “In too many cases leasehold has acted primarily as means of providing a steady income for developers, freeholders or managing agents.
What if I want to buy a leasehold, what should I look out for?ANDREW Johnson, money expert at the Money Advice Service has some tips on what to consider before buying a leasehold.
Check how many years are left on the lease. You may struggle to get a mortgage on a leasehold property which has less than 80 years to run. A short lease will be a lot more expensive to extend.
Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your property’s saleability in the future.
Ask how much the ground rent is. This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
Ask about service charges and other related costs. This generally covers repairs or maintenance to the property including building insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
“In the worst cases, people have been left trapped in unsellable and unmortgageable homes, needing permission or having to pay high fees for even minor cosmetic changes.”
A leasehold is where a homeowner buys the right to live in the property for a number of years, but doesn’t actually own the land the property sits on.
There were 4.2million leasehold properties in England in 2015–16, of which two-thirds (2.9million) were flats, according to Government figures.
But the Committee is now calling for a shake-up of the rules.
It wants the Government to ditch ground rents on new properties and to legislate to cap ground rents on existing leases to 0.1 per cent of the value of the property, up to a maximum of £250 a year.
The Government is consulting on plans to scrap leasehold on new properties and to cap ground rents at £10 a year. But it says current development contracts means it can’t do this until at least 2021.
Getty – Contributor A group of MPs is now urging the Government and the Competition and Markets Authority take action to improve how leasehold works
It adds that is also working with the Law Commission to make buying the freehold of a home or extending a lease faster, fairer and cheaper for existing homeowners.
Communities Secretary James Brokenshire MP said: “Since becoming Communities Secretary, I have repeatedly made clear my ambition to end those exploitative and unfair leasehold arrangements – rightly highlighted in today’s report – that have no place in a modern housing market.
“But we know there is more to do if we are to end the plight of unfair leasehold practices, and will announce further steps shortly.”Could compensation be paid?
The Committee is also calling for the Competition and Markets Authority (CMA) to investigate within the next six months whether compensation is due for the potential mis-selling of leases.
It comes after a report by trade body NAEA Propertymark found that more than half (57 per cent) of leaseholders didn’t understand what being a leaseholder meant, while 48 per cent were unaware of escalating ground rent.
Often (15 per cent of cases) this was because the solicitor recommended by the house builder hadn’t pointed out these clauses.
But it’s too early to say whether this could be the next mis-selling scandal or whether compensation will even be paid.
The CMA hasn’t committed to a review and says only a court can decide whether a leasehold is fair.
Mr Betts said: “The pattern of near-identical stories demonstrate significant failings in the process.
“The Competition and Markets Authority should investigate these claims and, where necessary, decide on appropriate compensation.”
Why is there a campaign to end leaseholds?SEBASTIAN O’Kelly is a trustee on the Leasehold Knowledge Partnership (LKP). The LKP is a charity that campaigns for reform on leaseholds and gives help to anyone suffering from unfair treatment by their freeholder.Leasehold just means long-term tenancy and you will be treated in law just a like a tenant: you do not own the land of the building; you do not own the building or any part of it; you own time to occupy a part of it.
It is marketing nonsense to sell leasehold homes, whether houses or flats, as “virtual freeholds” or even “home ownership”.
No one would describe a 10-year lease as home ownership, and you shouldn’t describe a 999-year lease as one either.
It is an utter scandal that housebuilders have sold leasehold houses around the country: it just means that they are creating an income stream from the freehold which they then flog off to dodgy anonymous firms, often based offshore.
Leasehold has more justification for flats, but the rest of the world outside England and Wales does not sell flats as tenancies.
The rest of the world sells them as real home ownership, where you own a bit of the land, a bit of the corridors and lift shaft and roof – and have to pay for them with your neighbours.
You have to agree to maintain the place with others.
You can find the Leasehold Knowledge Partnership here.
Developers denied to the Committee that their sales teams deliberately misled leaseholders by leaving out vital information and by giving false promises of purchasing their freeholds at an agreed price.
A CMA spokesperson said: “We recognise the problems that exist in leasehold contracts, which is why the CMA has already worked closely with the Government on issues like ground rent.
“We will consider this report carefully. However only a court, rather than the CMA, can decide whether a term is unfair under consumer law.”
Mr Brokenshire adds that he too has called on the CMA to investigate “alleged abuses and market failure as a matter of urgency” – and says he will take action, including legislation, if necessary.
There are very few leasehold properties in Scotland, while leasehold in Northern Ireland operates differently.
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Here’s what a leasehold is, what it means when buying a house and how it is different to a freehold.
Research from NAEA Propertymark found that leaseholders pay an average of £277 per year in ground rent when they move in, rising to £319 for those who’ve been in their home a few years.
The Law Commission has already been pushing for changes to make it easier for leaseholders to by the freehold of their property from landlords.
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