Plans would end ground rent hikes and protect buyers from legal loopholes
The government has announced what it calls “radical new proposals” to stamp out abuses of the leasehold system for newly-built houses.
Consumers have been outraged by ‘doubling clauses’ on leasehold properties they had bought which allowed for ground rent to soar under terms of leases put in place by a number of housebuilders.
The government’s plans, which would apply to England only, would deliver a “fairer, more transparent” system, according to communities secretary Sajid Javid (pictured).
Stung by fierce criticism surrounding some of its lease provisions earlier this year, Taylor Wimpey said it would set aside £130m to compensate buyers of its homes, although this would only apply to buyers who had acquired their home directly from the company; those who bought ‘secondhand’ would not benefit. The firm admitted certain leases contained clauses which saw ground rent on properties it built doubling every 10 years until the lease’s 50th year, and had caused some of its customers “understandable concern”.
Taylor Wimpey declined to say how many properties were affected but said it would bear the cost of the difference between the doubling rent clause leases and newer – and much cheaper – ground rent arrangements.
Following an eight-week consultation which begins today (Tuesday), Javid plans to ban new build houses being sold as leasehold and restricting ground rents to as low as zero.
“It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough,” he said. “These practices are unjust, unnecessary and need to stop.
“Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future,” he added.
The government said the proposed prohibiting of future houses being sold as leasehold would apply to all houses apart from a few exceptional circumstances where leasehold was still needed, such as houses that have shared services or are built on land with specific restrictions.
Javid’s proposals include setting ground rents to zero levels; closing legal loopholes to protect consumers, such as leaving some leaseholders vulnerable to possession orders, and changing the rules on Help to Buy Equity loans so that the scheme can only be used to support new build houses on acceptable terms.
Mark Farmer, co-founder and chief executive of Cast, labelled the government’s plans as “a step in the right direction for fixing our broken housing market”.
Farmer said that leasehold agreements for houses and the subsequent ground rents that are charged, artificially distorted a housing market already struggling with issues surrounding affordability.
“Banning developers from selling new-build houses on leasehold agreements to drive additional revenue may help recover some of the confidence that the public has lost in the sector.
“Without action on this and the parallel housing quality debate there is a real risk of buyers starting to move away from new build stock which would be a disaster for housing supply.”
In a statement Taylor Wimpey said: “We announced last year, following a review, that all future sales of Taylor Wimpey houses on new developments commencing from 1 January 2017 will be on a freehold basis, except where we don’t own the freehold.
“We have also introduced a scheme to help Taylor Wimpey customers who bought homes from us with a 10-year doubling ground rent clause. We are working hard with the freeholders to convert our customers’ doubling leases at our expense to ones which resolve concerns around how easy it is to sell or get a mortgage on these properties.
“Taylor Wimpey has set aside £130m to cover the cost of converting the leases on our customers’ behalf.”
Meanwhile the Home Builders Federation (HBF) said leaseholds had been used by generations of people and were “a secure and safe form of tenure”.
In a statement it went on: “The industry is committed to working with all parties to ensure that the terms on which leasehold homes are sold are fair and work for the homeowner. Buying and selling apartments on a leasehold basis is a long accepted form of ownership and provides security for people with communal facilities.
“There are instances where houses need to be sold on a leasehold basis, for instance where land has been acquired from local authorities, other public bodies or the Crown on a leasehold basis. HBF will work with its members to contribute to the consultation to ensure that any reforms are workable.”