Vicky Spratt | Deputy Editor | Wednesday, 26 July 2017

The New Way That First Time Buyers Are Being Screwed Over

The New Way That First Time Buyers Are Being Screwed Over

The Debrief: Here's why the law needs to change, and fast...

This week the government’s Department for Communities and Local Government announced radical plans to crack down on ‘unfair’ and scandalous leasehold practices. They say they want to deliver a ‘fairer, more transparent system for home buyers.’ Earlier this year, The Debrief reported on some of the problems facing leasehold first-time buyers, and that was just the tip of the iceberg. So, what’s been going on?

After years of renting and worrying that you’ll never actually own your own home. You finally put a deposit down on a property. You breathe a sigh of relief and wonder what’s going to keep you up at night now. The struggle is over, right? You’ll never be scammed by a dodgy landlord or unscrupulous letting agent again? Wrong. Sadly, for many people, plenty of first-time buyers among them, who buy a home on a leasehold basis plenty of unforeseen snags and injustices lie ahead, despite the fact that they have now fulfilled the very English dream of becoming a home owner. 

As Kim, as 29-year-old leasehold, London home owner explains, ‘when I bought my flat I was told that the ground rent would be an exorbitant £2,350 a year.’ That’s on top of her service charge and her mortgage repayments. The ground rent is set by the building owner and, she tells The Debrief, it’s the same for all of the flats in the building regardless of size. Hers is a small one bed. 

That’s right. You’ve bought a house; you’re paying a mortgage but you still owe someone rent. That’s leasehold, a form of home ownership normally used for flats where the property is sold to the consumer for a long tenancy (over and above 21 years long) by a landlord, who then retains ownership of the land on which that property is built. The landlord is known as the freeholder. 

A leasehold is effectively a tenancy and if you buy a property on a leasehold basis you can be expected to pay fees to the freeholder, which is known as ground rent. This can be set at a particular amount or it can be written into your contract that it will increase over the length of your lease.

It has become increasingly obvious that too many new houses are being built and sold unnecessarily as leasehold instead of freehold, exploiting homeowners with unfair agreements and spiralling ground rents in an already out of control housing market.  There are currently 1.2 million leasehold homes recorded in England. 

Shockingly, Kim’s exorbitant ground rent is just the tip of the iceberg. One case which hit headlines included a leasehold family home which could not be sold on because the ground rent charged on it was expected to rise hit £10,000 per year by 2060. The obvious absurdity, in this case, being that amount is not dissimilar to what many people struggle to save for a deposit to purchase a home in the first place. Other reports of leasehold homeowners being charged as much as £2,500 to build conservatories by their freeholders made headlines.    

 Some of the country’s largest home builders, including giant Taylor Wimpey, are at the centre of this scandal. It has been revealed that many of these developer companies sell their freeholds on once buyers have purchased their home on leasehold, to private equity firms and investment companies who sit back and watch the profits roll in. David Cameron’s brother-in-law, William Waldorf Astor, is among many investors who have made money from buying up leaseholds through his company HomeGround.  

 Kellie, 27, who recently bought a new build home on a leasehold basis from Taylor Wimpey expresses her concerns to The Debrief. When she moved into her new home it wasn’t properly finished, ‘the wardrobe that we had paid for wasn’t fitted, the walls were really wonky and the plug sockets were bowed, our kitchen drawers only had one screw where there should have been two and the floor was not level at all. To add to that, the painting wasn’t finished properly...there was a long list’. Since moving in Kellie tells The Debrief that she has had to go back and forth with the developer, arguing for them to make the problems with her property right, they’re still not fixed. ‘The developer is no longer speaking to me. I call Taylor Wimpey customer relations and I hear back from third parties. Nothing gets resolved.’ 

To add insult to injury, Kellie is paying Taylor Wimpy ground rent of £260 a year. She says her lease states that it could go up in the future but doesn’t specify how much by. She bought her house in Surrey for £299,500 using the Help to Buy scheme with her boyfriend earlier this year. She says ‘if my ground rent did go up it would become unaffordable and we would have to sell and try to get a freehold or get a lodger to help us pay it.’ Does she worry about this happening? ‘yes, of course. It’s always something though isn’t it, but there isn’t much you can do is there? Money makes money…’

For home owners like Kim and Kellie, the Government’s announcement that it intends to crack down on ‘unfair’ and scandalous leasehold homes is welcome news. It means they may be spared the stresses that other leasehold home owners have been subjected to in the future. 

The Debrief asked the Department of Communities and Local Government to explain exactly what they’re doing. They helpfully responded with the following:

  • 'We’re putting forward radical new proposals to cut out unfair and unnecessary leasehold practices, now and in the future.'
  • 'We plan to ban new build houses being sold as leasehold to protect future homebuyers from being locked into unreasonable contracts.'
  • 'We want to ensure that ground rents are fair and that consumers are not open to exploitation. That is why we are proposing to restrict ground rents on new leases for both houses and flats to as low as zero, or ‘to a peppercorn’ - a historic term which means a ground rent has no financial value.'
  • To support existing leaseholders, we are consulting on what we can do to support those with excessive ground rent charges now, which could include steps to tackle unreasonable and onerous rises in the future and strengthen the rights of consumer redress from unfair trading practices.

The Secretary of State for Communities and Local Government, Sajid Javid, told The Debrief

'When you go shopping today –  if it’s hitting the high street or going online, whatever you buy; once you’ve paid for it, it belongs to you.  It doesn’t matter if it’s weekend brunch or a break to Budapest. It should be the same when you buy a home. But too many of the new houses built today are not sold on traditional freehold term but as leaseholds.'

'Enough is enough. That’s why I’ve announced plans to ban the unfair and unjustifiable use of leasehold, and change the law so where a leasehold model might makes sense, like a block of flats, it can’t be used to rip people off.' 

'We want home buyers to be confident that their dream home they’ve worked hard for - won’t turn into a nightmare.'

For too long England has been in the grips of a catastrophic housing crisis which has seen a small number of people profit while the majority of people have no choice but to spend their hard-earned cash on over priced homes and extortionate ground rents. It seems that slowly but surely the balance is being redressed. 

The government is also proposing to close all legal loopholes in the interests of protecting buyers and changing the rules to their Help to Buy Equity loan schemes so that it can only be used by developers who build new build houses on what the government deems to be fair and acceptable terms. 

Halima Ali, the campaign coordinator of the Homeowners Rights Network told The Debrief, 'we started as a support network to support those affected via our website and Facebook page and we have grown within this last year as more people are becoming aware of the extortionate racket we have become ensnared in. We are currently near to representing 20,000 homes.'

'Being intimidated and bullied, not having any legal rights, not being able to challenge extortionate fees, made me and Cathy Priestly (my friend and campaign coordinator) feel like we had to do something'.

'One bad example is my own estate in Rochdale Lancashire' Halima tells The Debrief, 'we are being forced to pay Hazelvine Ltd near to £25,000 per year to maintain a park that is in an appalling state. We are pleased that the government is finally acknowledging the racket that is taking place in the new build housing sector. They need to go further and help homeowners who are affected by this nationwide scandal. We welcome the government including estate management issues in their consultation which is another fleecehold matter.'

Finally, Halima added, 'Scotland has abolished leasehold which is feudal so why can our government not do this. The government should make it clear that freehold should mean freehold and not fleecehold.'

Before the law changes an 8-week consultation will take place. You can respond and feed in your experiences of leasehold home owning here.

Like this? You might also be interested in:

Are Help To Buy And Shared Ownership Schemes Screwing First Time Buyers Over?

Renters Are Spending More Of Their Income On Rent Than Any Other Time In History 

1 in 3 Renters Are Getting Into Debt To Pay Their Rent 

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Tags: Politics, Housing Woes