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Government unveils potential ban on new build leaseholds

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  • 25/07/2017
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Government unveils potential ban on new build leaseholds
The government has set out plans to ban leasehold arrangements on new build properties in as little as eight weeks’ time.

While its consultation does not propose reforms to address existing leaseholders, it does address the issue and ask what measures could be considered.

Communities secretary Sajid Javid (pictured) is outlining the plans today which will see ground rents on almost all newly built homes in England capped at close to zero prices.

Earlier this year Javid revealed that he was willing to tackle to problem of vastly escalating leasehold practices by changing the rules of Help to Buy equity loans so that the scheme can only be used to support new build houses on acceptable terms.

This has also been included in the consultation, along with closing legal loopholes to protect consumers – such as leaving some leaseholders vulnerable to possession orders.

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,” he added.

 

Exploitation

Javid also highlighted a series of cases he had seen exampling the exploitation of unfair leasehold terms.

These included:

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

Regarding action for current leaseholders, the consultation says:

“The government recognises the challenges faced by existing leaseholders with ‘onerous’ ground rents,” the consultation notes.

“We are very keen to hear views on what steps could be taken to improve the situation of these leaseholders, which could include steps to tackle unreasonable and onerous rises in the future and strengthen the rights of consumer redress from unfair trading practices.”

 

Hot topic

The issue of unfair practices in leasehold contracts has been a hot topic within the mortgage industry.

In June a group of legal representative bodies proposed rules to more tightly regulate the practice.

In May, lender Nationwide imposed a minimum lease term of 125 years for new-build flats and 250 years for new-build houses along with a ban on unfair ground rent hikes for its mortgage lending.

And in April, Taylor Wimpey was forced to set aside £130m to address the issue of homeowners with escalating leasehold arrangements.

 

Further action

The Conveyancing Association welcomed the consultation proposals and urged the government to tackle the Commonhold and Leasehold Reform Act, which it said currently excludes leasehold homeowners from having any protection from unreasonable fees and unreasonable delays when buying, selling or simply improving their property.

Conveyancing Association director Beth Rudolf said: “This loophole means that one particular landlord openly continues to charge £300 for a Deed of Covenant when the First Tier Tribunal issued a judgement against them three years ago saying these should only cost £80.

“We hope the government will consider the leasehold reform proposals submitted by the Legal Sector Group last month and, in the meantime, at the Conveyancing Association we will continue our work to find a better method of tenure for properties with shared amenities.

“We are shortly undertaking a research study on Commonhold and hope that as many Commonholders as possible will respond to help us understand what it would take to make Commonhold a viable alternative to leasehold.

“After all, why should the number of years which a person can possess and live in a property reduce each year when they have paid the same amount for it as they would have done if it was freehold?” she added.

The consultation is open until 19 September.

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