The government has announced radical new proposals that will see a crackdown on abuses of the leasehold system, designed to deliver a fairer and more transparent system for homebuyers.
The move was announced by Communities Secretary Sajid Javid, and applies to new build houses, lifting anxiety from homebuyers on costs and resale values. The proposal will also see restrictions on ground rents to as low as zero.
Development of the proposal follows an increasing number of houses being sold as leasehold by developers, particularly in the north west. The term is usually applied to flats with shared spaces and estimated at some four million dwellings, but is increasingly being attached to new house developments, with some 1.2 million leasehold houses currently recorded.
Communities Secretary, Sajid Javid said: “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiraling 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.”
An eight-week consultation is now underway to examine the new proposals. Numerous other measures are included with the proposals that are designed to make a fairer system for house buyers. These include tackling ground rent increases by setting ground rents to zero levels; closing legal loopholes to protect consumers; and changing the rules on Help to Buy equity loans so that the scheme can only be used to support new build houses on acceptable terms.
A number of cases have come to light recently with leaseholders are often placed under onerous conditions and properties becoming unsellable due to this. Examples include; one homeowner charged £1,500 to make a small alteration to their home; with ground rent expected to hit £10,000 by 2060, one family house is now unsaleable; rocketing costs have seen a homeowner who was buying a lease at £2,000 see a bill of £40,000.
Government examination has also shown that ground rents charged on residential leasehold properties are becoming increasingly expensive. The new plans should see them so that they relate to real costs incurred, and are fair and transparent to the consumer.
The proposed prohibiting of future houses being sold as leasehold will apply to all houses apart from a few exceptional circumstances where leasehold is still needed – such as houses that have shared services or built on land with specific restrictions.
Building industry response to the proposals has been warm, with Ian Fletcher, Director of Real Estate Policy, British Property Federation commenting: “We welcome the Government’s consultation on unfair leasehold practices. It is important to distinguish between houses and flats, where the use of leasehold in flats is very common, but irregular in new build houses. Traditional freehold owners of leasehold flats have been aghast at the use of leasehold in houses, which is in most cases wholly unnecessary and inappropriate. The motivation seems to have been to raise unreasonable ground rents and, for the sake of home owners, the Government is right to clamp down on house builders who have been abusing this form of tenure, and with it their customers.
“The Government has also announced improving the process for recognising tenants’ associations. It is something we have long-supported. Tenants’ associations have rights of scrutiny over the running of their buildings, but with buy-to-let and other types of non-resident owner it is often difficult to make contact with the people who would have a vote in such circumstances. Making that process easier has our support. We would also support changing the threshold of votes needed to form a tenant association, from the 60% in current guidance, to a simple majority.”