Englishman’s home isn’t a castle: it’s a revenue stream for an offshore company thanks to national housebuilders, Justin Madders tells the Commons

Full speech:I spoke on this subject in the chamber last December at which point I described the emerging leasehold scandal as the PPI of the housebuilding industry. But now having seen more of the serial failures, deceptions and obfuscations I believe I may have understated the degree of culpability right across the board-
the developers of course are public enemy number one, but the lenders, the solicitors and even the government all have to take some share of the blame for a scandal which has the potential to fundamentally destabilise the housing market if it is not tackled soon.As my honourable friend the member for poplar and limehouse said earlier I am now a vice chair on the all party parliamentary group on leasehold and commonhold reform which he brilliantly chairs alongside the honourable member for Worthing west- they have been superbly assisted by the leasehold knowledge partnership in bringing this matter to the attention of parliamentarians- and , it does seems there is a degree of consensus across the house that these abuses need to be tackled..I understand the Government will be coming forward with plans to tackle some of the abuses in the leasehold sector shortly but it is vitally important that the proposals not only create a clear and fair framework for new builds but that they also create a strategy to deal with the existing rotten mess that developers have created.

There does now appear to be at least some self awareness by developers that leasehold homes are becoming toxic with many now pledging voluntarily not to sell any new homes on a leasehold basis. But that will not assist my constituents who have already bought their homes and have been quoted extortionate sums to buy their properties, or to obtain permission to alter the property or to even ask a question of their landlord. Nor will it assist the many who are already trapped because they have onerous leases that purchasers are no longer interested in signing up to and that some building societies will no longer lend on and it will not assist us in holding to account the guilty men and women who must have known that creating this second lucrative income stream for developers would ultimately be at the cost of their customers.

So developers are now beginning to acknowledge their responsibility with Taylor Wimpey to their credit announcing back in April they were voluntarily going to set up a process so those with the most onerous leases had the opportunity to convert them to new leases where the ground rent increases by rpi instead of doubling every ten years.
That announcement is where the credit stops though as three months on progress has been painfully slow. In the intervening period I have had at least one constituent contact me because their ground rent has doubled since the announcement was made which means that if it ever does get converted to an RPI lease then those rpi increases will be applied to a ground rent that is twice what it could have been. This has ongoing consequences of course should my constituent be ever in a position to purchase the freehold outright. And if she does try and purchase then she will still have to negotiate with the owner of the freehold, whoever that is and will still have to navigate the fiendishly complicated, lengthy and expensive process.

The lease itself may still contain other punitive clauses aside from the ground rent which as we have seen from some examples can include charges of up to £3000 just to get permission for an extension.

And this is all before we consider those who aren’t covered such as second generation purchasers where Taylor Wimpey aren’t the freehold owners. Where do they stand? There is going to need to be an active Government strategy to deal with everyone affected by this scandal. And the Government does actually have a financial interest to sort this out- at the end of March 2017 the number of Help to Buy purchases on leasehold properties stood at 28,146, of which 11,641 are houses.

23 % of all help to buy purchases are leasehold and given concerns about the drop in value of some of the properties with the most onerous leases, there is a real question about whether Government will get all its money back. To my astonishment though there has not yet been any outright ban on help to buy funds being used to purchase leasehold houses.

But let us be clear, Mr Speaker, sorting out the immediate consequences of onerous lease terms must be the start of the process not the end of it. We need to learn the lessons and if necessary legislate so that the worst excesses of capitalism that we have seen here are not allowed to infect our society again. There needs to be a much easier, quicker and cost effective way so people can purchase their freehold outright- and then we need to bring in an outright ban on houses being sold on a leasehold basis.

But there also needs to be a long hard look at how this has been allowed to happen in the first place. I would like there to be a full select committee enquiry into how this practice developed – at the moment we do not even know the extent of it- developers must be required to give evidence about why this systematic duping of their customers was allowed to start in the first place, who were the authors of those leases that now nobody will sign up to, how many properties were made leasehold needlessly, how much profit they have made out of this scam and who exactly are the beneficiaries of the leases now?

These properties are being passed around from one company to another, some are based outside this country and there is secrecy about who the ultimate recipients are of the substantial income coming from the leases. There is an old saying that an Englishmans home is his castle but it now seems that an englishmans home is in fact a revenue stream for an offshore company operating from a tax haven. What is very clear to me is that when people bought their houses they thought they were doing just that, buying their home.

What they never contemplated for a moment was that actually the true owner of their home would be someone they may not ever know the identity of who can sell on their interest in the property to somebody else without their knowledge or consent. It sounds like something out of feudal society not 21st century Britain.

That takes me to what else I would like a select committee enquiry to look at- the legal profession- speaking as a former solicitor myself I know that mistakes are made but it seems incredible to me that so many people make the same complaint about the advice they received at the time of their purchase. I surveyed my constituents in leasehold properties and a staggering 80% of them did not know the true nature of what they were buying- I think those figures demonstrate that there is a compelling need for further examination of the advice that was provided- I have heard of developers offering incentives to use particular solicitors, why would they do that and what led to such a collective failure in the profession?

What advice was given to the lenders whom solicitors also have a duty to? We now know for example that Nationwide will no longer lend on properties with doubling ground rents- it rather raises the question about what theirs and other lenders exposure is and crucially why they granted mortgages on these properties in the first place.

None of the developers will tell us how many properties they have built with these onerous clauses within them. We need to know the scale of the problem- what risk is there to the stability of our lenders and to the housing market itself?

So as I have hopefully demonstrated, the range of issues this scandal highlights are such that we do need a full select committee enquiry as well as legislation- all this hasn’t happened by accident and we need to make sure it doesn’t happen again.

Finally Madam Deputy Speaker I wish you, all other members & most importantly the staff who work so hard to keep this place running a restful and peaceful summer break.