Communities secretary Sajid Javid announced plans to ban new build houses being sold on a leasehold basis and to restrict ground rents to as low as zero in a bid to tackle the abuse, which is thought to have affected thousands of homeowners.
Leaseholders own their property and its land for a certain period of time – often long term, for 90 years or more – by agreement with a freeholder, who is the outright owner.
They have to pay maintenance fees, annual service charges and their share of the building’s insurance, and typically pay an annual ground rent to the freeholder
But as the trend for leasehold ownerships has risen in recent years, large numbers of people have been hit by unfair clauses in their contracts meaning they must pay out large sums to make small changes to their homes.
We are delighted to see the government responding to such a significant weight of evidence from leaseholders and stakeholders in the property industry.Beth RudolfSome property developers have been selling new build houses on a leasehold basis with ground rents that increase sharply – some of them doubling every 10 years.
As a result, a number of the affected homeowners were left unable to sell their properties because lenders would be unwilling to offer a mortgage to prospective buyers.
Other proposals set out by the government include closing legal loopholes to protect consumers and changing the rules on Help to Buy equity loans so the scheme can only be used to support new build houses on acceptable terms.
Mr Javid said: “It is 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.”
A consultation has been launched on the proposals and will run for eight weeks.
Nationwide became the first major lender to tackle the problem by introducing a new valuation policy for new build leasehold properties in May this year.
It imposed minimum acceptable lease terms on new build transactions of 125 years for flats and 250 years for houses, with the maximum acceptable starting ground rent on all new build leasehold properties limited to 0.1 per cent of the property’s value.
Robert Stevens, head of property risk, data and strategy at Nationwide, said: “We are pleased that the government have recognised our efforts to push to achieve fairer ground rents as part of the consultation.
“The government’s consultation is considering additional changes that would look to address unfair practices, and we look forward to exploring these proposals in due course. We hope that this leads to better outcomes for those buying new build properties by creating a fairer marketplace.”
Beth Rudolf, director of delivery at The Conveyancing Association, said: "We are delighted to see the government responding to such a significant weight of evidence from leaseholders and stakeholders in the property industry, and producing proposals intended to prevent additional homeowners getting caught by escalating ground rents and unreasonable consent fees.
"We look forward to hearing more details on these proposals and hope they will deal with the single biggest loophole, the Commonhold and Leasehold Reform Act, which currently excludes leasehold homeowners from having any protection from unreasonable fees and unreasonable delays when buying, selling or simply improving their property.
"This loophole means that one particular landlord openly continues to charge £300 for a Deed of Covenant when the First Tier Tribunal issued a judgement against them three years ago saying these should only cost £80."
simon.allin@ft.com
