The Government is to ban builders from selling newbuild homes as leasehold while also reducing ground rent. An eight-week consultation on the proposals was announced on Tuesday by Communities Secretary Sajid Javid.
Mr Javid described the situation around the terms of some leasehold, where ground rent costs can escalate by thousands of pounds, as another example of a "broken housing market" and he said: "Enough is enough. These practices are unjust, unnecessary and need to stop.
"It's clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents."
The proposal by the Department for Communities and Local Government (DCLG) will only apply in England. It suggests prohibiting the sale of new leasehold houses; changes to Help to Buy when applying to leasehold properties; and limiting the starting value and increase of ground rents on all new residential leases over 21 years.
A leasehold property is one where the buyer leases the property from the owner of the freehold, that is the individual or company that owns the building and land outright. Leases are usually long in length, but the leaseholder is obliged to pay ground rent annually and it is here where unfair practices are leading to financial hardship for buyers.
Growing trend by builders towards leasehold
At the moment there is no cap on increases in ground rents with some properties now virtually unsellable because of crippling annual charges. While most leasehold properties are flats, there has been a growing trend in England for newbuilds to be sold leasehold - in 1996, 22 percent of newbuilds were sold leasehold; by 2015, that number was 43 percent.
It is this practice, which Mr Javid described as "feudal", that he intends to outlaw.
The DCLG says that around 21 percent of private housing in England is owned by leaseholders - 30 percent of those are houses, around 1.2 million homes.
In its consultation document, the DCLG points to the call from the All Party Parliamentary Group on Leasehold and Commonhold in Parliament for reform. It also notes that leasehold legislation is a complex matter that is covered by several different Acts of Parliament, noting: "Many prospective leaseholders are no fully aware that this form of tenure involves a landlord-tenant relationship, or of the significant financial and other intersts they sign up…"
Avoid a conflict of interest
The consultation will not deal with existing leasehold disputes with a number of groups pushing for fairer ground rents and longer leases for those most affected.
If you're buying a newbuild, some builders insist that buyers use their suggested mortgage broker, solicitor or conveyancing team. As the government's consultation demonstrates, this could provide a conflict of interest when a leasehold is involved.
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