In a parliamentary debate on 21 December 2017, Reading West MP Alok Sharma (Conservative), who is also the minister for housing in the department for communities and local government, condemned property companies’ practice of imposing high and increasing ground rents on leaseholders.
“We have heard of consumers with very onerous ground rent terms who are effectively trapped in their own homes, unable to find a buyer,” said Alok Sharma. “Some of those people have not been able to get redress and do not know where to turn for support. The leasehold system as it stands is not working in many consumers’ best interests.”
“Even most developers accept that use of leasehold for new build houses, unless in exceptional circumstances, is entirely unjustified. This has got to stop.”
“It is clear that many purchasers did not make an informed choice to buy a leasehold house,” he continued. “Far too many reported being surprised to find that their home had been sold on to a third-party investor, and the cost of buying the freehold had risen considerably… sometimes running into tens of thousands of pounds.”
- measures to crack down on unfair practices, including legislation to prohibit new build leasehold houses other than in exceptional circumstances,
- legislation to ban the sale of leasehold houses on land that is not already subject to an existing lease,
- restricting ground rents for new leases of houses and flats to a low (‘peppercorn’) value,
- ensuring freeholders have a right to challenge unfair service charges,
- working with the Law Commission to support existing leaseholders by making freehold purchase and lease extension easier, faster, fairer and cheaper.
Alok Sharma said that the government had asked developers to arrange for a fair leasehold contract where a property had been sold onto an investment company, and the government wanted both property developers and investors to extend compensation schemes to include everyone with onerous ground rents, including second-hand buyers.
He added that it was inappropriate to use the Help to Buy equity loan scheme to finance leasehold house purchases.
“We cannot impose a new requirement on developers under existing contracts, but we expect them to work with us to take that change foward ahead of legislation,” he said.
The Nationwide Building Society refuses mortgages on properties with unfair leasing conditions
In May 2017, one of the UK’s biggest mortgage lenders, the Nationwide Building Society, announced its decision to consider mortgage applications for new build leasehold homes only if they have a minimum 250 year term and a ground rent starting at a maximum 0.1% of the property value, which escalates in line with a verified index such as the RPI.
“We are doing this to address the practice of using leasehold tenure where this is unnecessary, particularly for new build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled,” said Nationwide’s Robert Stevens.
This was picked up by the Guardian which noted this meant that properties on Berkeley Homes’ Kennet Island development in Whitley, which is in Alok Sharma’s own Reading West constituency, may not qualify for a Nationwide mortgage unless the property developer (or investor) reduced their ground rent. This would affect not only the property developer’s ability to sell new homes, but existing leaseholders who may find it difficult to sell their existing home.
The Whitley Pump would be very interested to hear from anyone with personal experience of leasehold and ground rent issues on the Kennet Island development in Whitley. Contact us at email@example.com , or leave a message in the comments below, on Facebook or Twitter. Your identity can be kept confidential.
- Alok Sharma’s own website, at parliament.uk and theyworkforyou
- Leasehold and commonhold reform parliamentary debate December 2017
- Fixing our broken housing market (UK government report)
- Nationwide steps in to protect homeowners from unfair leasehold practices
- Three cheers Nationwide for bloodying housebuilder nose (The Guardian, May 2017)
- Berkeley Homes at Kennet Island
- Help to Buy