Avoiding leasehold property pitfalls

An all-party parliamentary group of almost 60 MPs and lords is to look into growing problems associated with leasehold properties amid allegations that the system is being abused and buyers of new-build homes in particular being exploited.

An increasing number of buyers of new houses, flats and sheltered homes for the elderly in England and Wales have been caught out by developers selling homes as leasehold when they previously would have been freehold.

The buyers are initially reassured by being given long, 999-year leases but when they enquire about buying the freehold later, find it is prohibitively expensive.

Alarming examples include:

• A 22-year-old who, seven years after the purchase of a £155,000 new-build home she had acquired with a 999-year lease, tried to buy the freehold only to find that the developer has sold it to another company who wanted £32,000.
• A woman who bought a house built by a developer in 2011 with a 999-year lease. When she later tried to buy the freehold, which had again been sold to another company, she was told it would cost her £40,000, one third of the property's value.

Escalation in ground rents

Historically, annual ground rents on properties with a long lease were low, often around £5, so there was little value in reversion to freehold.

But now ground rents are much higher, often around £300 a year, with a contract saying this will double every 10 years - valuable income for the company that buys the freehold.

Urgent action

Justin Madders, MP for Ellesmere Port and Neston, has called for a ban on leasehold for estates of houses. He said: "It is clear this system is being abused to drive huge profits at ordinary homeowners' expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses.

"They need to be banned - it may be a convenient way for developers to get extra profit from their building work, but once they get in the hands of these private equity companies the profit motive overrides any considerations that there are real people living in their homes, who are being asked to stump up eye-watering sums."

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