Government plans to ban new-build leaseholds
Earlier this year the government stepped into the growing unrest over leasehold properties, proposing a ban and the cutting of ground rents. For many people, this is a problem which has only just recently emerged, while others have, understandably, never heard of leaseholds or what the trouble with them is.
This month we’ll be catching you up on what the scandal is all about and why it matters.
What are leaseholds?
Most houses are sold as freehold, meaning that you have control over the property, but when it’s sold as leasehold – as many new build properties have been recently – it means you’re essentially entering a long rental agreement with the freeholder of the ground the property is built on. This means you don’t control the property and must have the permission of the freeholder in order to make changes and alterations to it.
Why are leaseholds bad?
Initially, leaseholds didn’t seem to cause much concern because the ground rent wasn’t high at all, people simply paid the leasehold mortgage and a token amount for the freeholder – many freeholders didn’t even bother collecting ground rent.
Now though, it’s been highlighted earlier this century, developers started creating clauses which increase ground rent to unaffordable levels, doubling them every ten years. This could add up to thousands of pounds each year on top of mortgage payments, growing all the time, a cost which doesn’t appear to have been pointed out to many – especially first-time buyers.
People are trapped in their leasehold agreements as it’s harder to now sell these homes on with such high ground rents. Since it’s so lucrative for the freeholder, the leaseholders are also not often able to buy the freeholders out.
What exactly is the government proposing?
So vast is the issue with leaseholds, that the government is proposing to ban any future sales of leasehold houses, they also advocate the cutting of ground rents to zero. This will do little to ease the concerns of those already in these agreements, but there have been compensation schemes and others have sought to fight back against conveyancers who did not warn buyers of the risks with leaseholds.
Should they ban all leaseholds?
A ban seems the right way to go when it comes to leasehold homes, since the situation is so open to abuse, putting people under spiralling costs which simply cannot be paid or even justified much of the time.
However, there are some who have pointed out that banning leaseholds will decrease the amount of affordable homes in communities. Since leasehold mortgages are less expensive, it could see even more people priced out of the market.
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Contact our friendly team today or pop down to our site for more details – we’re always happy to assist you in finding the right tools and materials for your requirements.