Leasehold new houses – the next mis-selling scandal?

Caught in a trap – Leasehold new houses

Given the information, no new homebuyer would ever choose to buy a house with a leasehold title. Perhaps this is why some housebuilders hide this extremely important information from new homebuyers. Even if they do think to ask about the property title, it’s no good saying “People are scared of change because it’s something new. But it’s virtually freehold.” As a Persimmon sales advisor told a reporter from The Guardian.

leasehold new houses

Is it Freehold? New homebuyers are getting caught out by newly-built leasehold houses.

Justin Madders MP for Ellesmere Port and Neston, is calling for a ban on leasehold new houses:

“It is clear this system is being abused to drive huge profits at ordinary ­homeowners’ expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses.

“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.”

As Patrick Collinson reported in The Guardian on Saturday 29 October 2016, a new house built by Taylor Wimpey in Ellesmere Port was sold for £155,000 on a 999-year lease in 2009. Seven years later, the owner was quoted £32,000 to buy the freehold from E&J estates who had bought the freeholds from Taylor Wimpey. Another buyer was quoted up to £40,000 by E&J estates for the freehold of their 2011, 4-bedroom £122,000 house and despite a long lease, another new homebuyer in Manchester is was forced to pay £38,000 to buy the freehold on their recently built home.

Escalating ground rent is another issue. Taylor Wimpey set the ground rent at £295 a year on the Ellesmere Port development, with the contract stating that ground rent will double every ten years!

The Guardian reports:

“Like thousands of others in England and Wales, buyers have been trapped by a controversial trend among housebuilders to sell homes as leasehold when they previously would have been freehold. The buyers are given reassuringly long 999-year leases – but later find that buying the freehold is prohibitively expensive.”

Government figures show that around 6,000 new houses were sold as leasehold last year. Previously, houses on new-build developments were sold as freehold, but leasehold new houses are becoming more common with the likes of Persimmon, Taylor Wimpey and Bellway selling houses as leasehold on their developments. Indeed a third of new houses sold by Persimmon are leasehold, around 4,372 in 2015, nearly three-quarters of all new leasehold houses registered in 2015.

Justin Madders, MP for Ellesmere Port and Neston, whose constituency covers the Taylor Wimpey development says the situation is: “morally indefensible”. 

“I have had a number of constituents contact me, saying they were aware at the time of purchase that the freehold was extra. However, they didn’t know the original developer sold the leaseholds to private investors who have ruthlessly exploited the law to line their own pockets.

“The prices they have been quoted to buy the freehold have rocketed beyond any reasonable sum people can afford. I have found constituents are unable to afford the fees being quoted and there are extortionate charges associated with obtaining permission to alter the property. Just over £2,500 was quoted for permission just to build an extension.”

The Guardian said it is easy for buyers to miss the fact that the new property is leasehold. For example, at Persimmon’s Agusta Park development in Yeovil, Somerset comprising of 2, 3 and 4-bedroom homes, all are being sold leasehold. Yet The Guardian reported there was no mention that the houses are leasehold on either Persimmon’s website, or in the site brochure.

Asking about the lease, Guardian reporters were told it was 999 years and the ground rent was £150, then £190, and eventually that the ground rent would go up every 10 years using a formula linked to the RPI. The Persimmon sales advisor said:

“It’s a 1,000-year lease. If she lives to 100 there will still be another 900 years to go. It’s virtually freehold. Flats are always sold as leasehold. Lots of [house] developments are going this way now. People are scared of change because it’s something new. But it’s virtually freehold.”

And regarding buying the freehold?

“It’s not available at the outset, but can be bought within two years. I’ve no idea. We don’t quote on the price of the freehold.”

Potential buyers allege they are not told about the leasehold until late in the process.

One Guardian Money reader said: “We were about to purchase a new house when we noticed that part of the communal charge for the upkeep of open spaces was for ground rent.” alleging that at no stage was the word leasehold used by the salespeople, nor was it in any of the documentation they signed. The reader said they pulled out of the purchase of the Persimmon home after seeing stories of housebuilders charging large fees just to give permission to make alterations, such as installing a conservatory and tens of thousands of pounds to purchase the freehold.

Developers were asked why they are selling houses as leasehold?

Persimmon told the Guardian:

“Persimmon sells a mixture of both leasehold and ­freehold properties. As Persimmon has acquired other ­companies over the decades, it has inherited the freehold reversions of leasehold properties sold by those businesses. There are around three million leaseholders in Britain. All Persimmon leasehold houses carry an extremely long ­999-year lease and customers are informed at ­purchase what type of property they are buying.”

Persimmon refused to state the typical ground rents charged, how much the company makes from selling freeholds, or the fees charged to leaseholders for approval for alterations or things like building a conservatory.

Taylor Wimpey ­confirmed it had sold freeholds to E&J Estates, but did not disclose the price, and would not comment on the £32,000 E&J Estates wanted for a freehold. They told the Guardian:

“At Taylor Wimpey the vast majority of our houses are sold on a freehold basis. However, in a small number of developments, ­predominantly in regions of the ­country where it is common practice in the market, we sell houses on a leasehold basis. Throughout any sale process, customers are fully informed of the ownership structure of the home. If a customer is interested in such a property, the sales team advises them whether the property is being sold on a leasehold basis.”

­Issues concerning leasehold properties will be top of the agenda for the all-party parliamentary group on leasehold and commonhold next month. Chaired by Labour MP Jim Fitzpatrick and Tory Sir Peter ­Bottomley, has attracted 43 MPs and lords.

Sebastian O’Kelly of the Leasehold Knowledge Partnership – a support group set up to protect and campaign on behalf of ordinary leaseholders said:

“It is disgraceful that plc ­housebuilders are building leasehold houses that ­ordinarily – and until recently – would have had freehold title. This is an ­erosion of the wealth of ordinary people at the expense of the rich.

Young people, after years of paying rent, finally buy a home and then find they are still, in fact, tenants – which is what a leaseholder is – with all the ­vulnerability that that implies.

The housebuilders are evasive over this issue and it beggars belief that the ­outrageous ground rent multiples come from household-name builders. There is no attempt to justify the adoption of leasehold tenure for these houses, which are not complex communal sites such as blocks of flats.”

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

One Response to Leasehold new houses – the next mis-selling scandal?

  1. Caitlin Jenkins

    This is a really informative blog, especially for new-buyers. Buying a property for the first time is such a big step and here the importance of doing thorough research is stressed. It’s so important to ask as many questions before signing a contract and to be wary of claims with vague language such as a ‘virtual’ freehold. It’s so good that MP’s are starting to recognise this as a problem and work towards a fairer situation.