The government takes action to ban the sale of all new-build properties as leasehold to return fairness for the housing market.
Developers of new-build properties are set to be banned by the government from selling homes as leasehold and ground rents will be reduced to zero to the benefit of first time buyers and home movers.
Leasehold is common for a block of flats where you own the property but not the land as residents live on multiple floors, however, it is not logical for a house on a plot of land.
The move is to tackle unfair leasehold practices and prevent future homeowners from being trapped in exploitative arrangements with all new houses using Help to Buy scheme to be sold on a freehold basis.
Existing homeowners with soaring ground rents that can double every ten years are not covered by the ban, however, the Competition and Markets Authority (CMA) are investigating potential unfair practices.
For home movers of leasehold houses wanting to trade up to a larger property, many have been unable to sell as buyers are unwilling to accept the high service charges and ground rents that could double in 10 years.
Sales of leasehold house reduce
Communities Secretary Rt Hon James Brokenshire MP said, we have long recognised that we have a responsibility to confront unfairness in the leasehold market and last year we consulted on proposals including the leasehold house ban and ground rent reduction.
Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year, he says.
The threat of government proposals has already had a fundamental impact on the sale of new houses with leasehold reducing from 11% of the housing market to just 2% this year.
Leaseholders of houses has seen ground rents rising significantly, higher service charges and excessive administration fees for the repairs undertaken.
Homeowners with leasehold houses and unfair ground rents may find it impossible to sell and remortgage buyers will have to stay in their existing home.
For older equity release buyers leasehold flats are acceptable where the lease remaining is about 160 years less the youngest borrowers age to access wealth to repay an interest only mortgage or even pay for care at home.
To provide leaseholders with the vital information they need to sell their home, ministers will introduce a new time limit of 15 working days and a maximum fee of £200 to make the home buying process quicker, easier and cheaper.
For Help to Buy the Secretary of State has also instructed Homes England to renegotiate contracts to avoid selling new leasehold houses protecting home buyers from unscrupulous charges.
For buy-to-let landlords with leasehold houses, they would have to charge higher rents to cover additional costs which could mean their property could be less competitive in the rental market.
Competition watchdog to investigate sales
Many home buyers own houses as leaseholders and granted the right to live in their property for an agreed period typically between 99 and 125 years.
The Competition and Markets Authority (CMA) is to investigate two main areas including the potential for mis-selling and unfair contracts terms operated by freeholders and managing agents.
In terms of mis-selling the CMA are focused on whether the buyers of leasehold property received the information they needed and understood the obligations of the arrangement.
The other part of the investigation is concerned with unfair contracts terms where the costs of the services and rents are deemed as being excessive.
George Lusty senior director for consumer enforcement said, buying a home is one of the most expensive and important purchases a person can make.
So it’s essential they fully understand the contract they are signing including whether they will have to pay more than they bargained for.
Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future, he says.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the property value tracker chart, mortgage costs calculator and equity release mortgage calculator.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays of a lifetime or even pay university fees for grandchildren.
