Chief executive says buying back freeholds on onerous leaseholds ‘is the right thing to do’
Housebuilder Countryside Properties has become the second major housebuilder to come up with a rescue package for those customers it sold leasehold homes with onerous ground rents.
The news follows increasing concern over the practice of selling leasehold houses and flats with quickly doubling ground rents which have left some new homes effectively unmortgageable. The government last month promised to ban the sale of leasehold houses in a consultation on leasehold reform.
Countryside chief executive Ian Sutcliffe (pictured), speaking exclusively to Building, said his firm had agreed to purchase freeholds where ground rents double every 10 years back from the ground rent investor it had sold them to, E&J Estates. It will give customers the chance to then buy them themselves for the same price or convert them so ground rents only rise in line with inflation.
Sutcliffe said: “Where ground rents double every 10 years we think it’s just increasing too quickly. We thought the right approach was to buy them back. We think it’s the right thing to do.”
The news follows the action by Taylor Wimpey in April, which wrote off £130m to convert the leases of homes where ground rents doubling every 10 years. Earlier this month, the firm said the provision meant pre-tax profits slumped nearly a quarter, ending up 24% down to £205m in the first half of this year.
Mortgage lender Nationwide has said it will not lend to leasehold properties with onerous ground rents and the Council of Mortgage Lenders is reviewing its guidance on the issue.
Unlike Taylor Wimpey’s offer, Countryside’s rescue package will be available to people who bought the homes on the second-hand market as well as direct from Countryside. However, Sutcliffe said limiting it to those schemes where ground rents double every 10 years meant only five Countryside developments will be affected. Customers who face ground rent hikes every 15 years or longer will not get help.
Sutcliffe said this decision had been taken because the difference between rent doubling every 15 years and one rising in line with inflation was very marginal, and it wasn’t clear that those customers would be worse off. While Nationwide has said it won’t lend against homes with 15 year doubling lease, Sutcliffe said: “We’ve been speaking to lenders on this and we won’t leave people hung out to dry.”
In addition, Sutcliffe said Countryside has not yet been able to reach an agreement with the freeholder, Adriatic Land, of its 118-home Silverpoint development in north London, where ground rent doubles every 10 years but that he was confident a deal could be reached.
MP Peter Bottomley, who has campaigned on the issue of leasehold abuses, welcomed the news. “Countryside’s management deserves praise for having gone further than Taylor Wimpey in recognising the problem and trying to unwind it. There now may be question about whether it needs to do more for those with 15-year doubling leases.”
But Sebastien O’Kelly, trustee of campaign group the Leasehold Knowledge Partnership, said: “I’m very concerned about those with longer doubling clauses as it doesn’t sound as if Countryside has sorted this out.”
The package is a reversal of Sutcliffe’s previous insistence that affected customers should take the matter up with their conveyancing solicitors.
Baz Jafar, a buyer of a £225k one bedroom flat in the Silverpoint scheme said Countryside’s change of heart was “music to his ears” but that he remained concerned. “We’ve had months and years of worry. This is people’s lives and houses, we can’t wait longer, we need a resolution now,” he said.
Sutcliffe declined to say how much the rescue package had cost Countryside but said it was not significant enough that it is required to make a stock exchange announcement to shareholders. “We will manage the cost within our accounts,” said Sutcliffe.