‘Peppercorn’ ground rents on Help To Buy properties … from next year

By Harry Scoffin

All leasehold properties sold under the Help To Buy scheme from April next year will have to have “peppercorn” ground rents – that is, ground rents set to zero under current understanding of the term.

The move was announced earlier this week along with the setting up of a New Homes Ombudsman to try to make the UK’s “oligopoly” plc housebuilders up their game:

Housing Secretary clamps down on shoddy housebuilders

A New Homes Ombudsman will protect homebuyers from rogue developers Under new rules, rogue builders will have to pay compensation for shoddy work The Ombudsman will be independent and enforced in law as soon as possible Housebuilders must join the Ombudsman so all homebuyers see swift action to resolve issues Builders must also put quality first to sell homes under the government’s new Help to Buy scheme Homebuyers who are faced with shoddy building work in their new homes will be protected by a new, independent Ombudsman, Housing Secretary Robert Jenrick has confirmed today (24 February 2020).

But the restrictions do not include a bar on Help To Buy excluding leasehold houses.

The government has been promising to set new ground rents to zero and to ban leasehold houses since December 2017 … and we are still waiting.

Help To Buy has plummeted on leasehold houses from a high of 5,849 sales in 2017, to 2,103 in 2018 and only 524 new-build leasehold houses sales in 2019.

Last summer Communities Secretary James Brokenshire ordered officials at Homes England, which administers Help To Buy, “to renegotiate Help To Buy contracts to explicitly rule out the selling of new leasehold houses, other than in exceptional circumstance, to protect new home buyers from unscrupulous charges”.

It is disappointing to see no specific ban on leasehold houses in this announcement.

LKP is concerned by the use of the leasehold sector jargon of “peppercorn” ground rent.

Heather Wheeler, a former housing minister, was one of many politicians – and others – who seemed to think that the term just meant a small sum. She applied it to ground rents of “twenty-five quid” a year.

In fact, it is established in the courts as meaning zero: a sum of no monetary value.

Monday’s purported Help To Buy ground rent crackdown is one of a number of “new quality measures to improve consumer experience and safety”, coming alongside a tightening of the eligibility criteria to first-time buyers only, and the imposition of regional property price caps.

These latter are to prevent middle class Londoners, with incomes beyond £80,000 a year, from gaming the taxpayer-backed scheme.

Two years ago the National Audit Office said that nearly two thirds of those who have taken advantage of the initiative could have bought a property without it.  

Monday’s announcement also gave confirmation of the much-vaunted plan to set up a housing ombudsman.

New watchdog will have power to ban rogue builders

A new body will be set up with powers to ban rogue developers from building new houses, and award compensation to those stuck in “shoddy” new-builds. The new homes ombudsman, which was promised in the Queen’s Speech last year, will be expected to take “swift action” to resolve problems. It will be tasked with resolving issues like faulty wiring, encountered by buyers of new homes.

Consumer homebuyers, currently facing the “injustice of … long waits and costly court cases trying to sort out problems with their new homes”, have been promised swift and no-cost redress from the New Homes Ombudsman.

The body, which will be independent of industry, will have powers to compel developers to pay compensation for snagging and other property defects, and expel repeat offenders who refuse to put quality first.

Communities Secretary Robert Jenrick said:

“It’s completely unacceptable that so many people struggle to get answers when they find issues with their dream new home. That’s why the Ombudsman will stop rogue developers getting away with shoddy building work and raise the game of housebuilders across the sector. Homebuyers will be able to access help when they need it, so disputes can be resolved faster and people can get the compensation they deserve.”

The ministry of housing has not said how the body will be funded.

It is to be hoped that consumers – almost always neglected when government and the “oligopoly” housebuilders get together – will be included on its board.