Nearly one in four homes sold through Help to Buy has a lease as developers cash in on the Government’s flagship mortgage scheme.
The Help to Buy equity loan scheme uses taxpayers’ cash so families can secure a mortgage on a new-build property.
Almost 135,000 newly-built houses and flats have been sold through the programme since its launch in 2013, with the Government issuing £6.7billion of loans so far.
But 24 per cent of these homes were sold with a lease – meaning the buyer does not own the property outright and has to pay an annual ground rent to the freeholder.
Nearly one in four homes sold through Help to Buy has a lease as developers cash in on the Government’s flagship mortgage scheme. The Help to Buy equity loan scheme uses taxpayers’ cash so families can secure a mortgage on a new-build property. (File photo)
Critics describe it as a ‘racket’, accusing developers of profiteering on the back of taxpayer funds. Developers often sell leasehold contracts to investors and some ground rents are set to double every decade.
Campaigners say onerous leases can leave families ‘trapped as prisoners’ in homes with spiralling bills that are almost impossible to sell at a reasonable price in future.
Help to Buy allows families to purchase new-build homes worth up to £600,000 with deposits of only 5 per cent. The Government provides a loan of 20 per cent or 40 per cent in London and gets the equivalent proportion of the sale price when the property is sold.
It is feared that the taxpayer will now lose out because if property prices fall the Government will not get all its money back from the loans – costing taxpayers a fortune.
When Help to Buy started four years ago, just 5.7 per cent of houses sold through the scheme had leases but the proportion has tripled since then. The figure was 7.9 per cent in 2014, 10.4 per cent in 2015, 14.8 per cent last year and 17.2 per cent in the first half of this year.
Figures from the Department for Communities and Local Government (DCLG) show 134,558 properties have been sold through Help to Buy. Of these, 32,266 or 24 per cent have leases, including 91.2 per cent of flats, which are traditionally leasehold, and 11.9 per cent or 13,508 of houses.
Critics describe it as a ‘racket’, accusing developers of profiteering on the back of taxpayer funds. Developers often sell leasehold contracts to investors and some ground rents are set to double every decade. (File photo)
Theresa May last week pledged to plough another £10billion into the scheme, which will assist a further 135,000 families in purchasing a home by 2021.
Katie Kendrick, of the National Leasehold Campaign, said the Government should ensure that the additional cash is not used to fund more leasehold homes.
‘Young families and first-time buyers have become trapped as prisoners in their own homes by oppressive leasehold contracts designed by greedy developers and freeholders,’ she said.
‘People buy a home thinking they own it, yet in the eyes of the law they are only a tenant.
‘Leasehold tenure needs to be assigned to the history books and abolished once and for all – for both flats and houses.’
Tory MP Andrew Selous said it was ‘wholly unacceptable’ for developers to sell new houses on a leasehold basis. ‘It is plain wrong,’ he said. ‘What is going on at the moment offends me enormously. The developers should be ashamed of the way they are behaving.’
Campaigner Sebastian O’Kelly, who runs the Leasehold Knowledge Partnership, said: ‘It’s outrageous that taxpayers are fuelling the profits of housebuilders who are creating such onerous contracts on their leases that the properties are then difficult to sell on in future.
‘Why on earth are taxpayers funding this racket?’
A DCLG spokesman said: ‘This Government is committed to tackling unfair practices in the leasehold market.
‘We recently consulted on a range of measures including seeking views on removing support for the sale of new build leasehold houses through the Help to Buy equity loan.
‘The department is carefully considering the responses.’