‘We are all stuck’: Catherine Gale with sons Owen and Oliver
Homebuyers are being locked into controversial leasehold contracts on newly built properties – just weeks before this type of sale is banned.
Money Mail can reveal that builders are selling three, four and five-bedroom semi-detached homes in the North of England for up to £400,000 on a leasehold basis.
With this type of deal, buyers don’t own the land under their homes. Instead, they pay rising annual fees to the freeholder, and often face onerous terms that can prevent them carrying out home improvements.
Former Communities Secretary Sajid Javid described leasehold sales as ‘unjustified’ and last year announced a ban that will force developers to sell new homes as freehold.
But despite the crackdown, there are no laws to help the hundreds of thousands of families who have already bought leasehold homes. Experts believe these properties will soon be seen as ‘damaged goods’ and may become hard to sell as their values fall.
This week, Money Mail found two estates in Lancashire which were still being marketed as leasehold. Homes on the Douglas Meadow estate, outside Chorley, are on the market from Stewart Milne Homes for £267,950 for a detached four-bedroom or £399,950 for a five-bedroom, with shared landscaped park and play areas. Each house is leasehold and owners pay an annual ground rent of £250, which is reviewed in line with Retail Price Index (RPI) inflation every ten years.
Leasehold homes on the Jones Homes estate at Rivington Grange, in Horwich, Bolton, cost up to £199,950 for a three-bedroom, while a four-bedroom semi costs up to £252,950. Ground rents are understood to be about £200 a year for a £200,000 house, and are reviewed every 15 years in line with inflation.
Sebastian O’Kelly, of campaign group the Leasehold Knowledge Partnership, says: ‘It is outrageous that after the scandal of leasehold homes has been exposed for so long, they are still being sold.’
An estimated 200,000 families are stuck with blighted leasehold homes. Many of those hit were first-time buyers, some of whom used the Government’s Help to Buy scheme to purchase homes with a 5per cent deposit. If their property price falls, they face going into negative equity.
Typically the leases they have last between 250 and 999 years. In some cases, their annual rent to the freeholder – who owns the land under the property – is scheduled to double every decade. That means a ground rent which starts at £250 a year rises to £500 a year after ten years, £1,000 after 20 years and £2,000 after 30.
For property developers, this income stream can be lucrative. Many builders make extra profit by selling the freeholds – and all future ground rent income – to investment firms.
Catherine Gale, 44, fears she faces a huge loss on her three-bedroom house outside Bolton. Catherine, who is divorced, bought the property in 2007 for £200,000
In theory, homeowners retain the right to buy the freehold at a later date under the Leasehold Reform Act. But the prices set by freeholders can be tens of thousands of pounds. The contracts also state that leaseholders who want to make changes to their home – for instance, adding a conservatory – must often seek permission from the freeholder and pay a fee.
Some who bought leasehold houses are already struggling to move home. Potential buyers fear the properties could become unsellable after the ban comes into force, and solicitors warn that banks have stopped lending on many leasehold properties where ground rents are due to double every decade.
Some banks are refusing to offer loans if the ground rent is more than 0.1per cent of the property’s value (i.e. £100 a year on a £100,000 flat). Karen and David Wilson had feared the leasehold scandal would leave them £92,000 out of pocket. In 2012, they bought a two-bed flat in Leeds from a private seller for their son Ben, now 35.
An estimated 200,000 families are stuck with blighted leasehold homes. If their property price falls, they face going into negative equity
The family tried to sell when Ben, a teacher, decided to move back to their home town of Ulverston in Cumbria. They found a buyer, but a day before completion the purchaser pulled out. Their solicitor had highlighted that the flat had a doubling ground rent clause in the lease.
The family begged the freeholder to link the ground rent to RPI inflation instead, which should make it easier to sell. It initially refused, but relented after Money Mail intervened.
Catherine Gale, 44, fears she faces a huge loss on her three-bedroom house outside Bolton. Catherine, who is divorced, bought the property in 2007 for £200,000. Now she needs to move to provide more space for her three children, two of whom have autism. She struggles to afford the £500 ground rent, which is set to double every ten years.
But homes on the estate have sold at tens of thousands of pounds less than their original price, she says. Catherine adds that although she knew the property was leasehold, she had little idea of what this meant. The developer, Taylor Wimpey, has since offered to allow Catherine and other owners on the estate the chance to link their ground rents to RPI inflation. It argues that this should make it cheaper for sellers to buy the freehold.
But under Catherine’s current arrangement, ground rents can only increase five times; under the RPI deal being offered, the number of increases will be unlimited. And if owners such as Catherine sign up for the change, they must waive their rights to take legal action against Taylor Wimpey over the doubling ground-rent clause. Catherine says: ‘I feel angry that we are all stuck.’
A Taylor Wimpey spokesman says: ‘We listened to the concerns and difficulties some customers were facing as a result of their doubling ground-rent lease terms and have taken action to put it right.
‘We have reached agreements with our freeholders who own their leases to enable the majority of customers with a ten-year doubling lease to convert their ground rent to an RPI‑based structure.
‘The use of RPI-linked leases is a nationally recognised and long-established measure, and is the most commonly used index for price increases across the leasehold residential sector.’
Tory Sir Peter Bottomley, who has campaigned on leasehold issues, says: ‘The people responsible for this scandal – the Government, developers and freeholders – have to fund a solution that is equitable and effective for families stuck with toxic leases.’
A Stewart Milne Homes spokesman says: ‘All our developments in the North-West have been freehold since January 1, 2018, with the exception of Douglas Meadow, which was not available for us to purchase on a freehold basis.
‘We have waived all admin charges and fees and arranged for a long lease that tracks the Retail Price Index to ensure there are no unexpected increases for our home buyers.’
A Jones Homes spokesman declined to comment.