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MPs call for reform to protect leaseholders from ground rent abuse

A committee of MPs have called for wide ranging legal reform protecting leaseholders from unfair charges and ground rents.

Wide ranging reforms of the leasehold system are needed as homeowners are vulnerable to onerous ground rents and high service charges according to a committee of MPs.

The practice applies to leasehold houses or flats in the North West of England such that ground rents increase to such a level properties of first time buyers and home movers are unsellable and unmortgageable.

In addition ground rent, permission fees have been levied far beyond reasonable cost and both should be subject to legislation to determine when they can be used as well as how to be calculated.

Main findings of the committee

Clive Betts, the Chair of the Committee said, we found that the leasehold system often fails to provide an effective system for managing multi-occupancy residential properties and believe that a commonhold model would be more appropriate.

There is a lack of evidence professional freeholders offer greater service levels and that leaseholders themselves should be the freeholders through a commonhold model.

This has resulted with remortgage buyers unable to to switch lenders, homeowners trapped in properties unable to sell or needing permission or required to pay high fees for minor improvements.

For older homeowners unable to switch or forced to repay their loan, rather than downsizing, the equity release buyer can agree a lifetime mortgage and could take extra cash for home and garden improvements or holidays of a lifetime.

Common to these developers are opaque service charges and poor maintenance of new-build properties with no possibility for leaseholders to challenge the management of their building.

The practice of selling a house as leasehold should be stopped and the use of financial incentives for the developers preferred solicitors raise creates an unacceptable conflict of interest.

First time buyers have struggled to save for the deposit on their first home finding later that they are locked into rising expenses and unable to sell their property in the future.

The government must tip the balance back to the leaseholder with legislation and greater transparency for operating ground rents, permission fees and robust mechanisms for dispute resolution.

What MPs have recommended

MPs have said the Competition and Markets Authority must investigate mis-selling in the leasehold sector and make recommendations for appropriate compensation.

The government needs to ensure that commonhold becomes the primary model of ownership for flats in England and Wales and also to end the practice of leasehold houses.

Introduce legislation to remove onerous ground rents in existing leases limiting this to 0.1% of the present value of a property, up to a maximum of £250 per year and for new-build homes set at a peppercorn rate or zero financial value.

The Government should introduce legislation to restrict onerous permission fees in existing leases.

Introduction of a standardised key features document provided at the start of the sales process by a developer or estate agent, outlining the tenure of a property, the length of any lease, any ground rent or permission fees.

There should be a low-interest loan Help to Buy scheme for leaseholders to allow homeowners or extend their leases but cannot obtain the necessary finance.

These schemes are unlikely to be available to buy-to-let investors as it supports new home ownership to people to get on the property ladder.

What are your next steps?

Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.

For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to maintain your lifestyle or even pay for care at home.

Learn more by using the equity release calculator, mortgage monthly cost calculators, and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.


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