Leaseholds and Freeholds – how does it affect you?
You pay your mortgage every month, it’s your name on the papers, so your house is all yours. Simple, right? Not for more than 1.2 million houses across England.
Almost half of new build properties are sold as leasehold, with buyers being told that long leases are as good as owning the freehold to reassure them.
Where a freehold means that you own the property outright, a leasehold means that someone else owns the freehold and you are bound to certain requirements for as long as the lease lasts. These are traditionally as minimal as paying for the correct insurance for the house, and keeping it well-maintained, but recently building firms have been exploiting loopholes in the system.
The Independent reports that building firms make £300 million to £500 million a year from the sale of ground rent agreements to investors, according to estimates by the Leasehold Knowledge Partnership.
Ongoing investigations by The Guardian have found repeated evidence of homeowners being told to pay extortionate fees for ‘licences’ and service charges to develop their home, even when planning permission is not required. As freeholds change hands from company to company, the cost of buying them rises and rises, and all this is perfectly legal, as the right of the leaseholder to buy the freehold is technically not affected.
And as the cost of buying the freehold soars, the value of the house in turn drops. Mortgage companies become more reluctant to lend to house buyers, and the likelihood of selling your house begins to plummet. One family, unaware of the significance of a clause in their contract, have found their home is now impossible to sell, because the ground rent is expected to hit £10,000 a year by 2060.
Statistics collected by the BBC show that the practice of selling new-build homes as Leaseholds is a particular problem here in the north-west. In SK6, almost 90% of new-build houses have been sold as Leaseholds since 2010.
Irresponsible investments, rising charges, and exploitative building companies chasing profit above the people living in the houses they build has led the government to step in. Last week, Communities Secretary Sajid Javid unveiled the government’s plans to ban the “unjust [and] unnecessary” practices, saying, “enough is enough.”
Under the government’s proposals, new-build houses will only be able to be sold as Freeholds, which provides much more security to the owners. Ground rents will be limited dramatically, and the interest of homeowners will, at last, be put first.
These proposals are, for now, only in their consultation stages and it is unclear how helpful they will be for the people already affected by the problem. For anyone concerned about the impact of their leasehold, or unsure whether there’s anything they can do, Bridge Law are on hand to help. We have over 15 years’ experience in dealing with Property Litigation and disputes; why not pop into the office to make an appointment or call us on 0161 427 0084?