Before we even look at the new proposals by the UK government the fact that the number of newbuilds with leaseholds has increased from 22% in 1996 to a staggering 43% in 2015 just about says everything. Traditionally leaseholds have been used for flats but there are now 1.2 million houses in the UK with leases, of which 170,000 are detached homes. So, what does the UK government propose?
Ground rents on newbuilds
As we touched on above, there has been a massive increase in the number of leasehold new build properties sold in the UK. While the leaseholder has the right to occupy the property they do not own the land themselves and therefore they are open to potential abuse from the owner of the freehold. The fact that a number of new build leaseholds have regular ground rent increases built into the agreement not only leaves the leaseholder open to ever-growing costs but extreme difficulty in selling the property.
It is unclear at this moment in time whether the UK government is looking to ban leaseholds on new build properties or looking to regulate ground rents and other charges. The subject has been put out for an eight week consultation and while there has been uproar over the last few weeks with regards to leasehold properties, what will investors left with freeholds have to say?
Help to Buy scheme
At a time when the UK government is looking to address the freehold/leasehold matter it is ironic to learn that 10,000 new leasehold houses have actually been sold using the government’s Help to Buy scheme which was introduced back in 2013. So, while the UK government appears very keen to address the problem, the much heralded Help to Buy scheme has actually exacerbated the issue!
The first thing the government will likely do is to ban the acquisition of leasehold newbuilds under the Help to Buy scheme. This would be a useful first step and ensure that those looking to climb aboard the property ladder do not suffer in years to come with increased ground rent costs and a potential inability to sell their home. It is worth noting we are talking about potentially thousands of pounds a year in the long run as many new build buyers are finding out today.
What about those already stuck in the leasehold trap?
While the government is looking to effectively outlaw unfair and unjust leasehold agreements it will be a totally different matter addressing the issue of those which are already live. Would the government be willing to effectively bring in retrospective regulations? Would it be fair on freeholders who are not exploiting the system but who could be caught up in the crossfire?
It will be interesting to see what happens in the next eight weeks as the consultation period progresses and we can only hope the UK government acts quickly and firmly. There are many landowners who have not exploited the system although unfortunately over the last few years we have seen a significant increase in the number of companies looking to “maximise their income”.