MILLIONS of people may be trapped with leasehold properties they can’t sell or remortgage because of questionable doubling ground rent clauses.
According to the Government, around 4.3million homes – both flats and new builds – in England are leasehold.
Getty – Contributor New build homes, as well as flats, are often sold on a leasehold basis
This is where you own the property for a fixed period of time but you don’t own the building or the ground it sits on.
Because of this, the leaseholder typically pays an annual ground rent to the freeholder who owns the building.
But the problem is that many of these homes were sold with terms and conditions that sees ground rents double every 10 years – and mortgage providers are now refusing to lend on these properties.
House builder Taylor Wimpey, for example, sold this type of new build property between 2007 and 2011.
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.
If you need further advice about a lease you can contact the Lease Advice organisation. This is a completely free to use Government-funded and backed service that provides independent advice to leaseholders. Use its online form to request a 15-minute phone chat.
It’s not clear how many people this affects but Housing Minister Heather Wheeler recently suggests it is between 12,000 and 100,000.
And around 14,000 people have joined the National Leasehold Campaign group, which calls for leasehold to be abolished.
And a survey by estate agent trade body NAEA found that almost half (48 per cent) of homeowners were unaware of the escalating ground rent.
‘We were never told about the doubling ground rent’
Sarah, 40, and Gene Sisley, 45, from Hayle in Cornwall say they were never told that the brand new flat they bought for £117,000 from Taylor Wimpey in 2009 had a doubling ground rent clause.
This saw their ground rent rise for the first time this year from £250 to £500, and it can double again every 10 years until 50 years has passed, by which point the rent will be a whopping £8,000 a year.
The couple only found out when they came to sell their property in late 2017 and a buyer pulled out of the sale. A second buyer then withdrew their offer in February 2018.
Sarah and Gene had been living in the flat for five years when they bought a larger home after having their two girls – Chloe, six, and Mia, four.
Sarah (with husband Gene and children Mia and Chloe) says she was never warned that their ground rent would double
They kept on the flat and Sarah’s mum lived there virtually rent free.
But last year Gene lost his job as a manager at Lidl when a severe stroke left him partially paralysed with no use of his left arm and limited feeling in his left leg.
It means the family are now struggling to repay the mortgage on both homes with just Sarah’s £16,000 part-time salary as a wholesale jewellery supervisor.
The couple have £194,000 outstanding on both mortgages but they’re in £2,000 worth of arrears.
They’ve also been pushed into £2,000 worth of council tax debt and have £20,000 in credit card debts because of the huge changes to their circumstances.
Gene’s life insurance policy didn’t cover critical illness and sadly they had no other insurance policies in place to fall back on.’I don’t want to lose our home’
Sarah said: “It was very touch and and go to begin with and the doctors can’t say if Gene will ever be able to get back work.
Sarah Sisley The couple’s flat (on the first floor in the middle) could now be repossessed
“He gets a weekly Personal Independence Payment (PIP) and we qualify for some Universal Credit – but that’s reduced because I work – so our earnings have been massively effected.
“We got behind on the mortgage payments on our flat in October and now it might be repossessed. It’s so stressful having to find this money when I don’t have it.
“The problems with the lease have cost me emotionally and financially and I don’t want to lose our home too.”
The couple can’t even turn the flat into a buy to let property to rent out because they can’t find a mortgage lender that will agree to this – particularly as they’re behind on repayments.
To complicate matters further, house builders have been flogging freeholds to the highest bidder and often these freehold companies then exploit leaseholders for cash.
The family’s freehold is owned by Madison Close Freeholders Ltd, while the property is managed by Belmont Property Services, which charges £62 a month in maintenance fees.
The freeholder has offered Sarah a chance to buy her share back – but they want £15,000 for the privilege and Taylor Wimpey won’t help with these fees.
What can trapped leaseholders do?Here’s what Sarah Osborne, a partner at Hart Brown and the firm’s head of leasehold enfranchisement, recommends:
Consider suing your conveyancer. You may be able to argue that you were never told about the doubling ground rent clause or the fact that the freehold could be sold on. If you launch a negligence claim it could see your lease rectified or varied with the conveyancing solicitors bearing the cost. But you must claim within six years from the date the advice was given.
Request a lease extension. If you’ve owned the property for over two years you have a right to request an extension to your lease of an additional 90 years on top of your current lease term and more importantly, reduce the ground rent to a peppercorn (nil rent). This is a known as a statutory lease extension claim. But you will have to pay for this, as well as cover the cost of legal fees. If your request is rejected you can’t take your freeholder to court.
Convert your propety to a buy to let. If you don’t live in the home, consider converting it to a buy to let property so you can at least earn rent from tenants while you wait for the lease problems to be resolved. Check with your mortgage lender if this is possible or use a broker to find the best alternatives.
Beware the smallprint in Taylor Wimpey’s assistance programme. If you sign up to Taylor Wimpey’s leasehold review scheme you could have your lease rectified or varied. But even if Taylor Wimpey does align your ground rent with RPI be careful of the exact terms as it may suggest increases are upwards only, which means rents won’t fall if RPI falls.
‘I’m being held to ransom’
Sarah said: “I own that flat but it feels like I don’t. You’re being held to ransom by someone who has bought the freehold and I can’t afford what they want for it.
“It needs to change. Years ago people had 999 leases and peppercorn ground rent. But building companies are trying to make more money out of you after you’ve bought your flat.
“And now I still have to pay the mortgage, council tax, and maintenance payments on a property I could have sold.”
Taylor Wimpey has set up what it calls a deed of variation ground rent review scheme in April 2017 following widespread criticism of its leases.
The aim is to convert leases so that rather than doubling every ten years, they rise in line with the retail prices index (RPI) measure of inflation.
This is likely to mean lower increases than at present (RPI is currently 2.7 per cent), although RPI is still typically much higher than other Office for National Statistic inflation measures.
Taylor Wimpey says it has agreements in place to convert 95 per cent of its leases but only £25.5million of the £130million it set aside had been paid out by December 2018 – the most recent figures available.
The Government meanwhile, has been consulting on a shake-up to the leasehold system since 2017 and has promised to ban leaseholds on new properties.
But this doesn’t help those already with a leasehold home – an issue it’s still looking into alongside the Law Commission.
Sarah Sisley Sarah believes she was mis-sold her leasehold flat by Taylor Wimpey
Sarah joined Taylor Wimpey’s deed of variation scheme in April 2018 but a year later the house builder says it’s still negotiating with the freeholder.’Taylor Wimpey should be helping people’
Sarah believes she was “mis-sold” to. She said: “Taylor Wimpey did this in the first place by mis-selling. It’s wrong.
“I still feel it’s up to Taylor Wimpy to be helping people and to sort it out. And I think legislation should go through to reform leasehold.”
The Housing, Communities and Local Government Committee called earlier this year for an investigation into the mis-selling of leaseholds and for compensation to be paid to those who’ve been deliberately misled.
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A spokesperson for Taylor Wimpey added: “We are very sorry about the difficulties facing some of our customers as a result of their ten-year doubling lease terms and will not walk away from this.
“Our objective remains to work through this process fairly for our customers, to convert their ten-year doubling leases to an alternative structure that addresses the issues of affordability, mortgageability and saleability.
“We are working hard to reach similar agreements with the remaining, and very small number of freeholders, to enable us to do this.”
Both the freeholder and the management company failed to respond.
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