What to do if the new-build leasehold scandal affects you

A huge trend has swept through the housing market in recent years that has seen many national developers, as well as some independent developers selling houses on long leases and many buyers of such properties are now finding

themselves trapped.

This is because they don’t own the land their house is built on and as a result they now face paying spiralling ground rents to the freehold owner that are rising exponentially and often include onerous review provisions.

Estimates suggest that 1.2million houses have been sold on a leasehold basis and the situation has been dubbed the PPI of the housebuilding industry by MPs. In a House of Commons debate on leasehold reform it was also described as “nothing short of a national scandal”.

Housebuilding giant Taylor Wimpey has now announced that it is setting aside £130million to deal with complaints from homebuyers who bought leasehold properties between 2007 and 2011 that were subject to doubling ground rents every 10 years.

However, leasehold houses are nothing new, nor were they something to shy away from, because it traditionally meant paying a minimal “peppercorn” fee in annual ground rent to the property’s freehold owner.

Things have changed and nowadays leasehold homes are often accompanied by ground rents that continually increase and can reach exorbitant amounts. A ground rent of £250 in 2010 may reach £8,000 by 2059.

Plus, there are fees being charged for things such as carrying out minor building work and a recent case we handled saw the homeowner charged £2,500 just so they could convert their garage into an additional room.

We’re being inundated with enquiries from worried homeowners who are having to make substantial additional payments on their homes due to rising ground rents. Some developers are also selling the freeholds to

investors, and people are worried about the potential fees they would look to charge for consents under the lease. As a result of this, people can find it difficult to sell their homes and mortgage lenders might be reluctant to lend against them.

There are steps that such homeowners can take but they can be a complex process and require expert advice. Initially, anyone who bought a new build property on a leasehold after 2000 should review their lease and check how their ground rent will increase. Homeowners do have a legal right to buy their freehold after two years, but they’ll need professional legal advice to do so.

Leasehold properties now make up a large proportion of housing stock in many city centres and towns. Unless legislative changes are made to put an end to the practice of new-build houses being sold on leases with escalating ground rents, it’s highly likely that growing numbers of homebuyers will find themselves in this difficult position.

The first question anyone considering buying a new build house should ask is whether they are buying on a freehold or leasehold basis, and if it’s the latter they should read their lease carefully and arm themselves with expert advice.

It’s also vitally important that anyone buying a second-hand leasehold property treads very carefully. This is partly because Taylor Wimpey has said that they’ll only help their original buyers, because any second-hand buyers will have entered into a separate legal agreement. Other housebuilders are likely to take a similar stance, so caution is key.