Tens of thousands of leasehold homeowners are stuck in properties they regret buying, according to a new survey, which claimed two-thirds feel they were mis-sold.
Estate agent trade body NAEA Propertymark surveyed more than 1,000 people in new leasehold houses to explore the extent of the scandal which has left thousands facing escalating ground rents, extortionate fees, and a struggle to sell their homes.
The vast majority of those surveyed, 94 per cent, said they regretted buying a leasehold, and two-thirds of these homeowners feel like they were mis-sold.
Half of those who bought leasehold homes say they weren’t told they were buying the lease
The controversy over new houses sold as leasehold rather than freehold has led to a forthcoming ban, but there is no definite proof that leasehold houses were mis-sold.
However, the study reveals the strength of feeling among owners that they were.
The survey revealed that when it came to completing the purchase, 65 per cent used the solicitor their house builder recommended.
Some 15 per cent of those say they weren’t told they weren’t buying the freehold by a professional – they had to find it in the contract themselves.
In addition, nearly half didn’t know they were only buying the lease until it was too late, and 57 per cent didn’t understand what being a ‘leaseholder’ meant until they had already purchased the property.
Almost half were unaware of the escalating ground rent until it was too late, and as a result a third are now struggling to attract a buyer because of the onerous terms in the lease.
A spokesperson for the Home Builders Federation said: ‘The vast majority of new build houses are sold on a freehold basis, but it can be necessary on occasion to sell new houses with leases. This includes where the developer itself does not own the freehold.
‘Leases for houses, like flats, commonly include proportionate ground rents that do not impinge on the mortgageability or saleability of a property and, as such, leasehold is a well established and secure tenure with which to own a home.
‘In all transactions, builders strive to provide prospective purchasers, their solicitors and their mortgage lenders with all relevant information. Purchasers are always advised to engage their own legal advice during the purchase of a home.’
How hard is it to sell a leasehold home?
Of those currently trying to sell their home, NAEA Propertymark’s research found that a third are struggling to attract a buyer because they don’t own the freehold, and a quarter have had interest from house hunters, but when they found out the property was being sold as leasehold, they were deterred.
As a result of this, one in five has actively tried to buy the freehold to make their property more attractive to prospective buyers, while 41 per cent are thinking about doing it.
The vast majority, 93 per cent, say they definitely wouldn’t buy another leasehold property because of their experiences.
The leasehold scandal came to light last year after it emerged that developers had been selling leasehold properties with high fees and spiralling ground rents attached.
Some of these developers included clauses that saw ground rents double every 10 years, effectively trapping the homeowners in houses they could not sell.
Once the purchases were complete, in many cases property developers then sold on freeholds to third party companies without informing the homeowners. Around 1.4 million houses in Britain are leasehold properties.
Leasehold campaigner Louie Burns, of Leasehold Solutions, said: ‘For too long freeholders have simply denied the many problems evident in the leasehold system, but the NAEA’s report is a damning verdict on the role of developers and freeholders in causing and perpetuating the leasehold houses scandal.
‘Often consumers have little choice but to buy leasehold properties, which can appear to be cheaper than freehold properties at initial purchase, but which quickly become an ongoing financial burden for the consumer, and a cash cow for developers and freeholders who can exploit their tenants.
‘This is truly a scandal and the Government needs to take urgent, robust action to ensure that leaseholders are protected from such abusive practices.’
94 per cent of those asked regret buying a leasehold, and two thirds feel they were mis-sold
What’s next for leaseholders?
The Government has now proposed a total ban on new build leasehold homes, and recently the Law Commission proposed a raft of new rules which could give leaseholders the right to purchase unlimited longer lease extensions without a ground rent.
In addition, the Law Commission is now recommending that the Government replaces the current right of leaseholders to purchase a one-off 50-year lease extension at a high ground rent, with a right to purchase unlimited longer lease extensions without a ground rent.
It is set to consult on the period of the extension, which it suggests could be 125 years or 250 years.
The Commission is set to publish a detailed consultation on leasehold houses and flats this Autumn, and will publish its final report next year.
This is Money asked Homeowners Alliance founder and chief executive Paula Higgins for her advice for leasehold property owners.
What are the charges associated with leasehold?
Fees and charges associated with a leasehold property can be many and varied, and may not be immediately obvious to anyone who is thinking about purchasing or selling a leasehold property.
To help understand the three types of charges commonly associated with leasehold property – ground rent, service charges and administration charges – the Conveyancing Association, the trade body for the conveyancing industry, has put together a guide which outlines what they cover, what they might cost you, and whether they are reasonable or not.
These fees tend to be payable to the lease administrator who will normally be a person or company employed by the landlord – who owns the freehold – to administer and manage the building.
The guide can be downloaded from the CA’s website and should shed some light on the leasehold process, the costs that may be incurred, and what to do if you are charged excessive fees.