After years of campaigning by LKP, it looks as if the sale of newbuild leasehold houses is coming to an end. With support from the NLC and the national newspapers in recent years, it has become more and more difficult for developers to convince customers that a leasehold house is somehow a good idea. The use of terms like “virtual freehold” is now long gone.
Developers now appear to have switched more and more of their house sales to freehold, although many now try to adopt the ‘fleecehold’ model. This burdens freeholders with some of the same charges they used to add to leasehold houses in the past, like permission fees.
Now that most developers are unable to sell leasehold houses they have suddenly dropped their previous claim that leasehold houses helped them sell homes at a lower price. They also used to claim that people in the NW and NE were somehow more used to buying leasehold and were more than happy to do so.
The numbers
The figure for newbuild leasehold houses had gradually increased from 6% of the market in the 1990s up to 10% of sales by 2007. It stayed at that rate until 2014 before starting to climb.
Newbuild leasehold house sales reached their peak in 2016, with over 11,000 sold in England and Wales. These homes accounted for 15% of all newbuild houses. It then dipped back to 13.2% in 2017.
In 2018 the market for newbuild leasehold houses has collapsed by almost 80% from the 2016 peak.
To date, 2018 has seen just 2,188 new leasehold house sales registered with the Land Registry, with the numbers going down as the year progressed. In the last two months of the year, just 228 newbuild leasehold houses have been registered. It takes a number of months for all new sales to register but at the moment it looks as if sales have returned to levels not seen since the 1990s. 2019 seems likely to see that number drop even further.
Sales values of newbuild leasehold houses are now also down from their peak of £2.7 billion in 2016 to £625 million.
In the circumstances, it is unsurprising that most of the developers and freehold investors have suddenly become very supportive of the government’s proposed ban on the sale of newbuild leasehold houses under some future legislation. They now seem to focus on keeping their income streams from leasehold flats and creating freehold “fleecehold” sales income streams. The submission from the House Builders Federation to the Select Committee somehow avoids all reference to the fact the leasehold market had grown so much. It glosses over the problems caused and suggests it is somehow important not to change the market too much.
Why has it taken so long?
The leasehold house issue is a problem which could and should have been addressed long before now. Over the years the various and numerous Housing Ministers were persuaded that LKP was wrong to say that leasehold houses were causing a problem in the market.
When LKP met Minister Brandon Lewis in 2015, officials and developers assured him that developers selling more and more leasehold houses was nothing to worry about. There is now.
Thousands of leaseholders are stuck in homes blighted with onerous lease terms.
The problem now faced by many leasehold house owners is that the government has stepped back from its previous commitment, made in December 2017, to help those already burdened with onerous leases. That commitment by Sajid Javid seems to have been watered down by James Brokenbshire to no more than asking officials to keep an eye on developers voluntary schemes which are supposed to mitigate the problems the developers created.
It is at best naive to believe that developers will do any more than the absolute minimum to mitigate their customers’ losses. A number of developers seem to be working on the assumption that officials are not aware of which of them have sold with onerous lease terms, and many of the freeholders seem to have worked together to claim that the size of the problem has somehow been overestimated by LKP. They seem not to have noticed that the numbers they are criticising appear in government documents.
It is difficult not to conclude there has been some link between the growth of the leasehold house market and the large quantities of tax payers’ money available only for newbuild purchases through the Help to Buy scheme.
An example
The developers used to claim that selling houses leasehold enabled developers to sell them at a discount. This argument has been questioned over the years at many APPG meetings by those developers who have not exploited this market. The reality is that leasehold houses are sometimes sold at a lower price than freehold houses in the same area but they are also sometimes sold for as much if not more than freehold ones. In 2017 Miller Homes were unable to explain why two identical homes on two identical plots in the same development were sold within three months of each other with very different results.
- The leasehold newbuild house had a sale price of £247,495.
- The freehold newbuild house had a lower sale price of £234,995.
Miller Homes commented on the price difference as follows:
“We are unable to comment on specific prices paid by customers as a number of factors are taken into account, such as incentives, as well as tenure.”
At the end of 2018 Miller Homes’ website still claims that the difference between a leasehold and freehold home is:
Leasehold:
“Land held under a lease for a specified number of years on which a ground rent is paid. Find out more here.
Freehold:
The full ownership of both the property and the land on which it stands.”
https://www.millerhomes.co.uk/help-and-advice/faqs/legal-and-financial-faqs.aspx
As many readers are now aware the difference is not just the land but that leasehold provides a lease of the home for a set number of years whereas freehold provides full ownership of the home and the land in perpetuity.
Like so many other freeholders and developers, Miller Homes feels entirely confident in recommending those with concerns about leasehold issues to contact the government funded leasehold advisory service (LEASE).
Related posts:
Surge in new-build leasehold houses with £1.9 billion sold last year
Now Bovis says ‘Our houses are freehold’. (Gleeson’s always were …)
Leasehold houses have been sold for more than freehold ones, reports Telegraph
Bellway fears backlash over leasehold houses may eat into profits
Telegraph reports that leasehold newbuild flats are on the rise
Santa visits Citiscape and New Providence Wharf
I like this article but why does LKP undeplay the problem of service charges. I quote paragraph 3 :
“Developers now appear to have switched more and more of their house sales to freehold, although many now try to adopt the ‘fleecehold’ model. This burdens freeholders with some of the same charges they used to add to leasehold houses in the past, like permission fees”
Why do permission fees get mentioned but not service charges which are, for me and many others the greater problem and rip off of the leasehold/fleecehold tenure, paying these unregulated and unsubstantiated and unpreditable fees , which can amount to more in cost than ground rent.
I just gave permission fees as an example in this article. Service charges are mentioned on the website on a very regular basis.
A ground rent being for no service is of course a burden on the property and should lower the value of the property
Had the ground rent been say £3000 a year then I am sure the valuer and the solicitor advising thebpurchaser would have made sure the premium paid for the lease reflected the onerous nature of the rent. Therefore the purchaser neither gains or loses as a result of the imposition of the rent- the premium he pays reflects the obligation to pay the rent
However when the rent is say £350 per annum nobody considers it properly and knowing that they don’t developers set it at that figure and make a better price – can you blame them for trying to get the best price in a free market economy – it’s no different from a householder tarting up the kitchen for a couple of grand hoping it improves the price by many times that figure
The root of the problem as I have said all along is that the the present value of the ground rent should be disclosed using a prescribed discount rate best robrhe premium paid so the purchaser knows the true cost of the rent
Your comment is highlighting one of the problems, however even when I read the terms of the lease 3 times nowhere does it say it doubles every 10 years (started at £250), it just says “it doubles”, whereas in another place in the lease terms it is mentioned there is a review after 130 years. If the lease terms stated clearly “doubles every 10 years” a simple calculation would have had me flagged the problem that after 50 years I would be paying £8000 which is basically unsustainable, I would have walked away. In the next 20-30 years many (maybe 1 million) of these affected will be evicted from their properties once they are unable to simply pay a rent of £2000-£8000 P.A.. Does the government even consider the potential social implications of such a devastating situation?
My suggestion all along has been that the Net Presnet Value of the rent be shown next to the premium in the prescribed clause of the lease – then the abuse you ref to would never have arisen
Leasehold tenure and ground rent should be ended asap.
Many predictions made by politicians over the effect of Brexit on the fortunes of the UK, has distracted them from issues around Leasehold Reform. The most significant of these lost causes is in the Leasehold Housing Crisis.
It’s a problem so acute that most ordinary citizens living in urban areas can visibly see its effects on their pavements, church gardens and shop doorways. The number of people homeless this Christmas has reached a record high in recent years: more than 170,000 families are experiencing true destitution, with rough sleeper numbers doubling in just five years.
Recent reporting has shown the government has been forced to admit in parliament that only a fraction of the 250,000 affordable homes on sites where due to the House Leasehold Scandal the developers had failed to produce these properties instead have argued after planning was granted that it was no longer feasible.
Instead they made excessive profits from Leasehold Housing and Estate Management leases, with 10 year doubling Ground Rents so the could maximise their profit.
This skulduggery should be an embarrassment to our PM. It may not be possible for government to attempt to simply talk its way out of a problem they have created in the Help to Buy. Leasehold Flats/Housing has dropped so far down the Conservatives’ list of priorities.
Recently Theresa May at a conference of Housing Leaders in September 2018 recognises the magnitude of the situation. In the October Budget, chancellor Philip Hammond gave councils the right to borrow money from banks to build new homes, not Leasehold but Freehold or Commonhold.
When government outsource a solution away from themselves, ensure if it doesn’t work they are not blamed.
Great timely article to remind us of the fabulous achievements of leasehold campaigners. Working together we have forced Government and developers to act. Make no mistake, this wouldn’t have happened without people power and pressure.
It’s also a timely reminder that we cannot stop. The strong words of Sajid Javid have dissipated into less than a whimper from his successor, James Brokenshire. It’s not hard to make change happen instead of kicking the bomb down the road with endless technical consultations. Developers have changed their business models but merely substituted the leasehold gravy train for the fleecehold one. It’s rare to find new build houses without permission fees, estate management charges and non-adoption of public services. New build homes should carry a health warning. And there needs to be more awareness of the multitude of leasehold abuses that happen to flat owners too.
Bring on 2019 and more campaigning and pressure for much needed leasehold reform and abolition.
Jo thanks,
The fabulous achievements of leasehold campaigners, working together has forced Government and Developers to act, and all are to be thanked.
We must not stop as you say, the words of Sajid Javid have dissipated into less than a whimper from his successor James Brokenshire. Don’t forget he was a PM Appointment to do her bidding, and would have dictated terms, which is why they were watered down. Some MPs have vested interest in the Status Quo.
It is a lot harder than you think to make changes happen because of the Lobbying allowed, remember David Cameron was to regulate all Lobbyists before being instructed to kick the can down the road.
Developers always change their business models depending on how successful the Lobbyist are. The Gravy Train politicians use, still need tracks laid down by the Lobbyists who support the party financially and as we have just seen turkeys don’t vote. Of course the tracks can be changed at Points Systems to decide on the journey but we do not have direct access to the changes required, we vote in Politicians to carryout their duty but alas they seem to have their own agenda.
The seeds of Leasehold were planted in Feudal Times for the Gentry who still see us a peasants, many politicians family’s in the past benefited from Slavery and when it was ended the same families were paid compensation for their loss.
It will take a mighty shift to remove all the Fleecehold regarding existing Retirement Flats and other Developments including the recent scandal of New Build Housing to include:
*Permission Fees
*Exit Fees
*Estate Management Charges
*Non-Adoption of Public Services
*Excessive Service Charges
*Excessive Commissions Paid
*Duplication of items in Service Charge Budgets
*Transferring Operating Costs secretly to Service Charges
*Selling Residential House Managers Flats that are Communal
2019 can see be a massive change of Leasehold Reform, but we need help and more campaigns with added pressure on politicians to make them aware we know which of them have been the most help.
The pressure for leasehold reform in England and Wakes will grow, there will be more recruits to the cause in 2019 and 2020. It is not going away, whether or not this semi effective government does something about it, or the next one.