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Author Mark Fairlie
Leaseholds are now the number one concern for home buyers in the UK, according to the HomeOwners Alliance. More than 100,000 homeowners in England are currently trapped in “unfair developer contracts” with their leasehold costs steeply rising.
Whilst the leaseholder may own the property they live in, the land it stands on belongs to the freeholder. Freeholders are able to set and collect unregulated and uncapped annual ground rents from their leaseholders. Surging leasehold annual rents are leaving many unable to sell their homes and left with no way out of their contracts.
Where did leasehold houses come from?
First appearing more than 100 years ago, leaseholds were initially owned by a few private investors helping to rebuild the country after the Second World War.
Ground rents portfolios are generally owned by aristocratic families and many large fund managers including Long Harbour; run by the half-brother of Samantha Cameron, William Waldorf Astor IV. There are thought to be as many as 1.2 million leasehold houses today in the UK alone.
During the 1980s, a boom in the number of buyers meant freeholders were given the freedom to design leases that worked in their favour.
A new trend emerged where housebuilders would quickly sell the freeholds to their properties to investors, creating a brand-new stream of revenue for them.
In 2015, 43% of newly built homes in England and Wales were leaseholds, having almost doubled since 1996. However, researchers have found it extremely hard to narrow down how many of these properties there actually are.
Louie Burns of Leasehold solutions has spent over nine years researching on – and offshore freeholders operating in the UK. So far, he has traced more than 6,000 freehold companies and £2 trillion worth of freeholds, but he believes this is just a fraction of the real figure.
He said that it is “like a hidden world”, and so it is “very difficult to do any kind of meaningful research” to see the true extent of the scandal.
What does this mean for homeowners?
Freeholders are essentially free to set their own rules. This includes increasing leasehold annual rents and no contractual caps on charges associated with works on the property.
According to Direct Line, the average ground rent is currently £371 per year. However, freeholders will also charge the homeowner for any lease extensions, service charges, licences or commissions.
In one instance, a man from Warrington was forced to pay out £330 to ask for his freeholder’s permission to build an orangery on the house he owns. “Every little thing you do they can charge you for it,” says Burns.
Owners frequently overcharged for repairs
Housing minister Alok Sharma stated that £3.5billion of service charges are collected by freeholders each year, with property owners frequently being overcharged for repairs to their homes.
He reported one incident in which a group of leaseholders were charged ten times over the market rate to have a fire escape fitted, with the work then being completed by the freeholder’s brother.
It has recently come to light that many freeholders will also systematically increase their ground rents. Communities Secretary Sajid Javid said this “feudal” practice means the amount owed to the freeholder doubles every 10 or 25 years.
Some mortgage providers will now refuse to lend to these properties due to the rising prices of leasehold payments, meaning many leaseholders are now trapped in their contracts with no chance of reselling.
The end of leaseholds on new builds
Javid announced earlier this year that the government planned to put a ban on new-build houses being sold as leaseholds. He also said the government would begin restricting ground rents for flats to “as low as zero”.
Stating that “far too many” new homes were being sold as leaseholds, Javid said freeholders were
“exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.”
For those already living in leasehold properties, however, campaigners say the change has come too late.
The HomeOwners Alliance stated that they
“welcome the government’s recognition of the injustices in the current system and proposals to ban the sale of new-build leasehold houses. But we also need to deal urgently with those already caught in this scandal, by curbing extortionate ground rents.”