Are you considering buying a new-build property in the near future? Are you concerned that the property you might potentially buy could be subject to leasehold charges and escalating ground rents? If you are, then there may be some good news around the corner. The government has begun an 8-week consultation which could lead to ‘unfair charges’ on buyers of new-build leasehold houses being banned in England and ground rents could also be dramatically reduced.
‘unfair charges’ on buyers of new-build leasehold houses
So why is the government proposing these changes? Well, over the course of the last few years new-build properties have seen ground rents almost double. Unfortunately, these dramatic increases have meant that some home owners have struggled to pay their bills, and in some cases found it impossible to sell their properties.
In response to this issue the government has begun a public consultation. Speaking about the problem, Communities Secretary, Savid Javid said:
“Enough is enough. These practices are unjust and need to stop.”
Mr Javid said there were now 1.2 million cases of houses subject to leasehold charges. That large and disproportionate number, and the subsequent escalating charges, were, he said, evidence that the existing housing market was ‘broken’.
So what will happen if these proposed changes are accepted? Well, the proposals, if passed, would affect future sales. What about those who have already purchased a leasehold new-build property and are facing increasing difficulties? Well, according to Mr Javid, they would need to seek redress from their housebuilder, or, if the situation was not made clear at the point of sale, then they would need to seek redress from their solicitor:
“Builders and developers should be seeing what they can do to right some of the wrongs of the past,” Mr Javid told the BBC.
The leasehold system has existed for a long time in England and Wales, but generally applied to flats and blocks in multi-occupation. Under a leasehold purchase, leaseholders own their home for a fixed period of time on a lease to a freeholder. Many owners have long leases lasting many decades so are unlikely to experience any problems.
21 per cent of private housing in England is owned by leaseholders
Traditionally houses were sold as freehold properties, which effectively meant the owner not only owned the building, but also the land it stood on. However, over the course of the last decade or so, new-build houses have increasingly been sold onto owners as leaseholds, particularly in areas like the North West of England. According to official figures, around 21 per cent of private housing in England is owned by leaseholders: of those, 30 per cent of the properties are houses rather than flats
Under the new leasehold arrangements, owners pay a ground rent to the freeholder, but can be caught out by clauses which not only allow for dramatic increases in fees, but also increases in management charges for the upkeep of communal areas.
The Department for Communities and Local Government (DCLG) said the terms of some of the leases were ‘becoming increasingly onerous.’ It said its proposals aimed to make future leases fairer by reducing ground rents so that they ‘relate to the real costs incurred’.