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25/07/2017

Plans to ban new homes being sold as leasehold announced

Words: Laura Edgar
New houses / iStock

Communities secretary Sajid Javid has announced proposals to stop new homes being sold as leasehold as the government attempts to deliver a fairer and more transparent system for homebuyers.

The government’s plans also include restricting ground rents to as low as zero.

Leasehold generally applies to flats with shared spaces but the government said developers, particularly in the North-West have been selling houses on these terms.

Javid said: “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting homebuyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.

“Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.”

With 1.2 million leaseholds recorded in England, a number that is on the rise, the government has launched a consultation on its proposals.

As well as proposals to stop new homes being sold as leasehold and restricting ground rents to as low as zero, the government want close legal loopholes to protect consumer and change the rules on Help to Buy equity loans so that the scheme can only be used to support new build houses on acceptable terms.

According to the government, one leasehold homeowner was charged £1,500 by the freehold company to make a small alteration to their home while a family home “is now unsaleable because the ground rent is expected to hit £10,000 a year by 2060”.


Reaction:

Mark Farmer, co-founder and CEO of Cast, said the plans are a step in the right direction.

“Leasehold agreements for houses and the subsequent ground rents that are charged, artificially distort a housing market that is already struggling with issues surrounding affordability. Banning developers from selling new-build houses on leasehold agreements to drive additional revenue may help recover some of the confidence that the public has lost in the sector. Without action on this and the parallel housing quality debate there is a real risk of buyers starting to move away from new build stock which would be a disaster for housing supply."

Anne Baxendale, director of communicaitons, policy and campaigns at Shelter, said: “While the leasehold system can help make sure new homes are properly serviced, it’s clear it has been massively abused by developers who are using this to get something for nothing. Ground rent charges should be transparent and fair, and it’s vital that families hit by unjust charges are compensated.

“It’s good to see the government upholding commitments from their housing white paper, but it’s also important to remember this is only one small piece of the puzzle when it comes to our broken housing system. The only way we can put an end to this miserable housing crisis is for the government to get behind a different way of building homes, which puts the needs of families and communities first.”

On the other hand, the National Community Land Trust Network warned that the one-size-fits-all reforms to leasehold proposed by the government may hold back the delivery of new affordable housing.

Catherine Harrington, director of the National Community Land Trust Network, said: "Leasehold works well for many community land trusts across the country, allowing them to help people to access home ownership while ensuring that housing remains genuinely affordable in perpetuity. We welcome the Government's commitment to stamping out abusive practices by the big developers, but it shouldn't stop communities from coming together to build the affordable housing they so badly need.

"The National CLT Network is urging the government to reflect the distinctive needs of community land trusts in its reforms to leasehold. Community land trusts are playing a key role in building a fairer housing market, but to do that they need to be exempted from these one-size-fits-all proposals."


The consultation is open for eight weeks, closing on 19 September 2017. It can be found on the UK Government website.

Image credit | iStock

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