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UK govt to ban leaseholds on new build houses

By Frank Prenesti

Date: Tuesday 25 Jul 2017

UK govt to ban leaseholds on new build houses

(ShareCast News) - The UK government on Tuesday said it would ban builders from selling new homes as leasehold and was considering cutting ground rents to zero to curb a growing national scandal that has seen new property buyers exploited.
Communities Secretary Sajid Javid started an eight week consultation on the proposal squarely aimed at companies such as Taylor Wimpey, Persimmon and Bovis.

"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," Javid said.

He said the terms of some leases were becoming "increasingly onerous" to people buying a leasehold flat or house and who often found they needed to pay thousands of pounds to their freeholder to make simple changes to their homes. These clauses were only discovered after owners found out their leases had been sold on to a third party.

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

"Ground rents are charged on all residential leasehold properties but evidence shows that they are becoming increasingly expensive. Under government plans they could be reduced so that they relate to real costs incurred, and are fair and transparent to the consumer," he said.

He said ground rent had been used by some housebuilders "as an unjustifiable way to print money" and builders should do more to compensate affected owners.

"If they are responsible, if they want to keep their business in the future, if they want to show that they really care about their customers, they should be seeing what they should do to right some of the wrongs of the past," he told the BBC.

However, when pressed on whether the government would legislate for compensation, Javid said there were no plans.

"I don't profess that I've got all the answers on this. I've identified a problem, we've come up with some potential solutions. We don't pretend they're easy, there are are complex matters here."

The Leasehold Knowledge Partnership LKP), which has been leading a campaign to stop the practice, welcomed the move.

"Leasehold houses are an absolute racket: a means by which developers have managed to turn ordinary people's homes into long-term investment vehicles for shadowy investors, often based offshore," the LKP said.

"Last year, 10,300 leasehold houses were registered on the Land Registry. In 2010 the figure was 3,420. Unfortunately, they have not just been disadvantaging leasehold house owners."

"Thousands of leasehold flats have also been sold with these toxic ground-rent terms.
Altogether as many as 100,000 homes are unsellable as a result of this trickery."

"In short, plc housebuilders have been systematically cheating their own customers. So, now the housebuilders need to get serious at putting right a problem that they in their greed created."

In April Housebuilder Taylor Wimpey set aside £130m to cover claims from customers over leasehold policies that have doubled ground rents for home owners.

The company defended the practice as "entirely legal" but did acknowledge that it had caused "understandable concern".
Taylor Wimpey initiated a review in February after it was revealed that property freeholds were sold on to third parties who would only sell to the owners for a large premium.

This left customers with unsaleable homes as lenders would not approve mortgages on properties where the ground rents would double every 10 years.

"We acknowledge that the introduction of these doubling clauses was not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing," the company said.

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