Why Government must act over mis-selling scandal causing misery for house buyers - Greg Wright

As most readers will know, payment protection insurance (PPI) was mis-sold to millions of people by pushy salesmen who didn’t explain the policies properly.

They sold PPI to many people who simply did not need it. It was a familiar, sad story.

The competition watchdog is now preparing to act over “worrying evidence” of potential mis-selling and unfair contract terms in the leasehold housing sector.

The Competition and Markets Authority is concerned that some homeowners are having to pay escalating ground rents, which in some cases have doubled every 10 years.

This increase is often built into contracts, which means people can struggle to sell their homes and find themselves trapped.

The watchdog has also seen evidence that people have also been misled about the cost of converting their leasehold to freehold ownership.

When buying their home, some people were told the freehold would cost a small sum. They were later horrified to discover this price had increased by thousands of pounds with little or no warning.

Some developers are failing to explain the differences between leasehold and freehold when directly asked, and some actually tell potential buyers that there is no difference, according to the CMA.

By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so, the CMA said.

The CMA plans to back up its stern words with action which could have an impact on planned developments.

Matt Pugh, managing partner at property litigation specialists Hägen Wolf said: “The twin threats of imposed reform and enforcement action clearly bring financial consequences.

“Internal costs will need to be incurred in implementing reform, balance sheets will be affected and financial penalties could, in principle, be imposed. Whether action by the CMA results in any sort of slowdown in the leasehold market, and in the viability of certain developments, remains to be seen.”

Adam Fletcher, a director and property solicitor at Ridley & Hall Solicitors, believes legislation is required to regulate the excessive ground rent and multiplier clauses in leases.

“This needs to either be capped at £250 per property for properties outside London and £1,000 for London or dealt with as a peppercorn.

“Without doubt if this isn’t dealt with swiftly we will be faced with the PPI of the housing industry.”

The CMA’s announcement was welcomed by the Leasehold Knowledge Partnership (LKP), a charity which supports leaseholders. The LKP said its long campaign against the mis-selling of leasehold properties with aggressive ground rents had been “spectacularly vindicated” by the CMA.

The LKP has accused some firms of “dumping their customers into rip-off homes, coaxing them into using solicitors who did not point out onerous terms and then flogging off the freeholds to predatory speculators, who rack up permission fees under the leases”.

The Home Builders Federation (HBF) said the industry has made huge progress to identify and address the issues raised on aspects of historic leasehold sales.

The HBF added: “The number of escalating ground rent leases identified by CMA represents a very small percentage of the leasehold properties built and sold over the past 20 years. Builders’ focus remains on ensuring new-build owners and future buyers are treated fairly and have access to remedies where processes have fallen short.”

The evidence found by the CMA supports the case for changes to the law. The CMA said it will continue to work with the Government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.

Regulators must come down with an iron fist on everyone who seeks to exploit house buyers.

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