Newly built homes in the UK are being left unsaleable after catching house buyers in a leasehold property trap, with owners being asked to fork out five figure sums for freeholds, it is claimed.
With a 999 year long lease and marketing describing them as ‘virtually freehold’, new build properties are becoming increasingly attractive to buyers. However, the freehold to the property is often sold onto equity management and administration companies who are driving up the price and are becoming prohibitively expensive for owners to buy.
According to Government figures, around 6,000 new houses were sold as leasehold last year. And an analysis by leasehold reform organisation the Leasehold Knowledge Partnership shows that almost £2 billion worth of new build leasehold homes were sold in England and Wales in 2015.
MPs are warning that people are feeling trapped as the ground rent cost escalates over a period of time. Initially, it looks affordable, the developer gives the buyer a set ground rent with the contract stipulating this will double every 10 to 25 years.
On the face of it this doesn’t seem too unreasonable, however if the ground rent clause was £250 a year, doubling every 25 years for 999 years, the sum due for the final 25 years of the lease would reach £68,719,476,736,000.
Although home owners are given the opportunity to purchase the freehold, this is not available at the outset. The valuation of the freehold includes compensation to the freeholder for loss of future ground rent, amounting to 999 years of future income, or in monetary terms, in excess of £30,000.
Justin Madders, MP for Ellesmere Port and Neston, wants a ban on leaseholds for estates of houses. ‘It is clear this system is being abused to drive huge profits at ordinary home owner’s expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses,’ he said.
‘They need to be banned. It may be a convenient way for developers to get extra profit from their building work, but once they get in the hands of these private equity companies the profit motive overrides any considerations that there are real people living in their homes, who are being asked to stump up eye-watering sums,’ he added.
MP Peter Bottomley has also raised concerns. He has asked the Government to reassure ordinary home buyers that the practice will be addressed.
Already some builders have promised to sort it out. Taylor Wimpey, for example, that it will stop building revenue generating leasehold houses from 01 January 2017.
In a statement the builder confirmed that it sold leasehold houses in the North West only on a small number of sites in Yorkshire and where the developer did not own the freehold. ‘Whilst we believe that the practice is normal and reasonable, standing back, we are able to change our practice so that we will make future sales of houses on a freehold basis on any new sites that we develop,’ the statement said.
‘Whilst we expect this that this may mean a small increase in sales prices on previously leasehold sites, it will enable us to offer a consistent, simple product to all customers. We will be making this change from the beginning of 2017,’ it added.
