Quote Ref: WS1

No more costly leaseholds on new-build homes

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Leasehold deals which have seen new-build homeowners face rapidly increasing ground rents (sometimes doubling annually) are to be banned under new government proposals. 

We reported earlier in the year how many thousands of owners of new-build homes were being hit with unexpected costs when they went to buy their freehold, with costs being around 3 to 4 times more expensive than anticipated.

What is leasehold?

Leasehold typically applies to flats with shared spaces, but new home builders – particularly in the north west - have been increasingly selling houses on these terms.

Figures from the government show that 1.2 million leasehold houses are currently recorded in England and the number of leasehold sales is rapidly increasing.

In a press release, the Government said: The terms of some leases are becoming increasingly onerous to those purchasing leasehold flat or house, who often find they need to pay thousands of pounds to their freeholder to make simple changes to their homes. Recent cases include:

  • a family house that is now unsaleable because the ground rent is expected to hit £10,000 a year by 2060;
  • a homeowner being charged £1,500 by the company to make a small alteration to their home;
  • a homeowner who was told buying the lease would cost £2,000 but the bill came to £40,000.

Sajid Javid, Communities Secretary, said: “It’s 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”.

Other measures, which are now subject to an 8-week consultation, include:

  • closing legal loopholes to protect consumers – such as leaving some leaseholders vulnerable to possession orders;
  • setting ground rents to zero levels – in recent years these have increased significantly, in some cases doubling every 10 years;
  • changing Help to Buy equity loans rules so that the scheme can only be used to support new build houses on acceptable terms.

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