When buying a home most people expect to know how much they will need to pay to own it outright (Freehold). However, thousands of families across England and Wales are discovering the new-build houses are not all they seem.
New-build property trap
New-build properties are being sold leasehold with options to purchase the freehold after a fixed number of years ie “virtually freehold”. However, home owners are discovering that when the term had elapsed, the freehold purchase price had risen by many thousands of pounds.
Why? – because the developer had sold the freehold to an investment company without informing the family living there.
The consequence of this is that the investment company has a long-term interest in your home as they treat their investment as part of a long-term investment portfolio, whilst receiving payments for ground rents.
In England and Wales, the “right of first refusal” applies to flats, but not houses. So, this is not illegal practice.
See Katie’s story: http://www.bbc.co.uk/news/business-38827661
The leasehold system has existed for a long time in England and Wales, especially in blocks of flats. Many leaseholders have long leases, for example for 999 years, and experience no problems.
But the trend for new-build houses being sold as leasehold has accelerated in recent years. While not all house builders use this model, those that do argue it helps make developments financially viable. BUT some builders do not make it clear on their website what the finer details entail.
Ground rent fee doubled every 5-10 years
Taylor Wimpey has announced that it is putting aside £130 million to compensate homeowners who have been saddled with unmanageable ground rent charges and onerous leasehold agreements.
The building firm sold leasehold properties between 2007 and 2011 under the pretence that they were “virtually freehold”. The contract terms stipulated that the annual ground rent fee would double every five to 10 years, which resulted in spiralling costs, rendering the homes almost impossible to sell on.
In its statement, Taylor Wimpey said:
“We acknowledge that the introduction of these doubling clauses was not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing.”
Other building firms who have been criticised for the same practices, such as Persimmon and Bellway, are yet to review the issue or offer any form of compensation to homeowners.
Leaseholds v Freeholds
- A freeholder of a property owns it outright, including the land it is built on.
- Most houses are freehold but some might be leasehold.
- With a leasehold, the person owns the property for the length of their lease agreement with the freeholder.
- Leaseholders have to pay their freeholders ground rent and other fees.
- When the lease ends, ownership returns to the freeholder unless the person can extend the lease.
- Some wish to buy their freeholds to save themselves these costs.
- Source: The Money Advice Service