Beware Leasehold Problems When Buying A New-Build House
Britain’s New-Build Misselling “Scandal”
Some buyers are regretting buying leasehold homes with ground rents that double every 10 years. MPs have dubbed this “national scandal” the “PPI of the housebuilding industry”.
Leading housebuilder Taylor Wimpey has already apologised and set aside £130 million. We expect other companies to follow suit.
The growing pressure on Britain’s housebuilders to mend their ways seems inescapable. Leading lender the Nationwide Building Society is now refusing to lend on new-builds with punitive ground rents.
Nationwide says that:
- any increases in ground rent should be limited to inflation
- the initial ground rent should be no more than 0.1% of the value of the property
- the lease should be no less than 125 years for flats or 250 years for houses at the start of the mortgage.
Meanwhile, some other mortgage lenders have quietly changed their requirements and a minimum of 85 years left on the lease is the new norm for them.
Why You Can Regret Buying A Leasehold New-Build House
There is nothing wrong with buying your home on a leasehold basis. Millions of people – most of whom live in flats – do so quite happily.
But you must understand what you are signing up for!
And that’s the problem: many buyers who purchased new-build houses on a leasehold basis still don’t understand the difference between freehold and leasehold ownership.
They don’t understand that they have bought a lease which gives them the right to live in a property for a set period (such as 99 years). They don’t own the land that sits under it! And when the lease expires, the right to occupy the property is no longer theirs.
Buying leasehold can be commonly perceived as cheaper than buying freehold. It appears that some housebuilders have been turning to this to their advantage:
- By offering homes on a leasehold basis, the housebuilders can make them appear cheap compared with neighbouring freehold houses. On the surface it looks like a great deal – a brand new house for a price that compares favourably with older ‘secondhand’ homes.
- Buying leasehold can mean paying a ground rent to the freeholder who owns the land. For most flat owners this is usually very low. But some housebuilders are charging ground rents that rise steeply – resulting in disproportionately high costs for the leaseholder over the lifetime of the lease.
How Some Buyers Get Confused
At Coles Miller our residential leasehold solicitors always liaise very closely with our conveyancing solicitors. This ensures that buyers always have access to expert specialist advice when buying a flat, a new-build house or any other leasehold dwelling.
But not every law firm has a specialist residential leasehold department. And sometimes their conveyancing solicitors can make a mistake in the rush to stop a purchase from falling through.
What Can You Do If You Have Been Missold A Leasehold Home?
- Complain to the developer that sold you the house – the housebuilder may pay compensation using monies set aside.
- Buy the freehold – so that you own the land and will no longer have to pay ground rent to a freeholder. Under the Leasehold Reform Act 1967 you have the right to buy the freehold of your house – whether the freeholder wants to sell it or not.
- The 1967 Act also gives you the right to extend the lease but in practice most people buy the freehold instead.
- Do nothing for the moment – if you are happy with the ground rent you are paying there could be no need for immediate action. But do not be lulled into a false sense of security! Read the small print in your lease thoroughly to make sure there are no expensive pitfalls awaiting you. And remember, your lease is gradually expiring with every passing year – so the longer you leave it to buy the freehold, the more expensive it will be (generally speaking). That said, we are solicitors not valuer surveyors – if you are concerned about the price payable for a lease extension or for your freehold you should also consider taking advice from a valuer surveyor.
Find Our More About Residential Leasehold Law
For more information, contact Coles Miller residential leasehold solicitor Nick Leedham, 01202 355697.