Government plans to remove or decrease excessive ground rent will be outlined by the Communities Secretary, Sajid Javid, today.
Under the Government’s proposals – which are subject to an eight week consultation period – developers would be banned from selling new-build houses on onerous leases.
What is a leasehold property?
Leaseholders own their homes for a fixed period of time, on a ‘lease’ to a freeholder.
The leaseholder pays ground rent to the freeholder for the period of the lease.
As the number of years on the lease diminishes so does the value of the property this is why many leasehold property owners choose to buy the freehold of their property if they can.
In England most flats are leasehold properties. This allows one overall freeholder to determine the use of the land the flats sit on rather than relying on a consensus opinion of multiple freeholders. It was not however normal practice for houses to be leasehold properties, In recent years, however, builders and developers have been selling houses as leaseholds rather than freeholds. This allows them to retain ownership of the land and raise ground rents as determined by the lease.
What is the problem with new-build leases?
The problem arises with the terms of the lease, with some new-build leases ground rents can double every decade making a property impossible to sell.
Increasingly mortgage lenders are looking at these leases and refusing to provide a loan for them making it difficult for the leasehold owner to re-mortgage.
It is thought MPs are likely to ban the government-backed Help to Buy loans from being used for leasehold homes.
The government plans to ban anything other than nominal ground rents on all new leasehold properties but existing leasehold flats will be unaffected.
Ministers are also looking at changing the law to prevent existing leaseholders facing eviction if they build up ground rent arrears. They do not yet have specific proposals to help those with existing leaseholders on onerous terms but plan further consultation to tackle the problem.
Caveat emptor – “Buyer Beware”
A lease is a contract and as with all contracts the buyer must be aware of its terms and of the consequences of those terms. That is why it is important to employ an independent solicitor, who will highlight any issue with the lease before you make the biggest purchase of your life.