At the end of July the Government`s Communities Secretary, Sajid Javed, unveiled plans to outlaw the sale of new homes on a leasehold basis. Ground rents on new flats would also be reduced to “peppercorn” rates in the plans.
Builders of new homes sold on this basis face legal claims amounting to millions of pounds from buyers who have been tied in to leases with spiralling ground rent charges. These leases can include increasingly onerous financial costs where annual ground rents can double every ten years. This could mean that anyone buying a property with an annual ground rent of £250 included in the lease would be faced with a yearly payment of £8000 after 50 years. Owners of such properties can find it increasingly difficult to re-mortgage their home, and even selling it on becomes a problem once prospective buyers, become aware of the additional yearly cost of ground rent.
There are legal steps an owner can take to buy the freehold of their property, but these are often complicated and can be made worse if the freehold has been sold on by the builder to a third party. Further information is available on the Government website: https://www.gov.uk/leasehold-property/buying-the-freehold
Mr Javid`s new regulations may come into effect as early as the Autumn, but this will be of little comfort to the estimated 100,000 current owners of properties with escalating ground rents. Selling houses with this type of lease has become known as `the PPI of the house building industry`, and with these properties estimated to bring in £300 million to £500 million per year to developers and builders they are unlikely to give in to the government without a fight.