Is the end in sight for new-build, leasehold houses?

Posted by Amy Fullerton on
Following the 'ground rent scandal,' the Government has set out plans to outlaw leaseholds on new-build houses along with potentially reducing ground rents down to a peppercorn. But what will this mean for home-buyers? 

Earlier this year we learnt that tens of thousands of home owners are trapped in leasehold properties with spiralling ground rents. Many more are in leasehold flats which have doubling ground rents with examples such as a one bedroom flat in north London where the ground rent would be £6,400 per annum by year 50.

In April, developer Taylor Wimpey reacted to the scandal by setting up a £130million assistance scheme to alter the terms of their doubling ground rents in some of their new-build leasehold properties. Nationwide then took a stand on the matter in May by announcing that they would no longer lend against any new-build leasehold flat or house where the ground rent was more than 0.1% of the value of the property. The building society would also refuse loans on new flats with lease lengths of less than 125 years or new houses with less than 250 years.

Government's reaction 

This week saw the Government unveil its plans to tackle this issue with Communities Secretary Sajid Javid proposing a ban on new-build houses being sold as leaseholds as well as restricting ground rents to as low as zero.

Flats will still be able to be sold on a leasehold basis but the ground rents would be restricted to a "peppercorn" level. It is hoped that these changes will ensure that leasehold titles are granted in circumstances that work in the best interest of the homebuyer, rather than solely to the benefit of the freeholder. The plans also include changing the rules on Help to Buy equity loans so that they can only be used for new built houses on 'acceptable terms'. The ban is expected to come into force after an eight week consultation period.

What this means for buyers

These reforms are good news to all prospective buyers out there as the removal of expensive ground rents will be appealing to both buyers and mortgage lenders. However, what still needs to be addressed is what is going to be done to assist existing leaseholders.

One course of action could be that proposed by Sir Peter Bottomley, who has suggested that the doubling of ground rents every 10 years is an unfair term and should therefore be ruled unenforceable. Alternatively leaseholders could look to extend their lease under the current legislation which has the effect of reducing the ground rent to zero. However, as this process includes the need to pay the landlord a sum for the loss of future rent, which for instances where the ground rent is currently doubling, is not an insignificant sum, this could be an expensive option. Alternatively, there is the option that Taylor Wimpey has opted for which is to allow the lease to be varied by agreement. Although, with many developers selling off the freehold titles to offshore investor companies looking to benefit from the ground rent, this may be hard to put into practice.

Whilst further consideration may still be needed as to how to assist existing leaseholders, the proposals outlined by the Government in relation to future new-build houses and leasehold properties is definitely a welcomed step in the right direction.

If you have a leasehold property and require further advice on how these changes impact you, please contact our specialist leasehold enfranchisement team.

About the Authors

Photograph of Amy Fullerton

Amy is a Solicitor in the Family Law team, based in London.

Amy Fullerton
Email Amy
020 7814 6910

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Photograph of Louise Uphill

Louise is part of the Real Estate Team and is a specialist in leasehold enfranchisement dealing with residential landlord and tenant related matters.

Louise Uphill
Email Louise
020 7014 5256

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