… What I want what was promised: my freehold for £5,000
Freehold owners are desperate to nobble the ground rent capitalisation rate before reforms
Speech at APPG on July 11 2018
Jo was also on BBC R4 You and Yours yesterday, which can be heard here at 35 mins in:
Treatments for depression, Debt collection, Widebeam canal boats, You and Yours – BBC Radio 4
NHS treatments for depression and the bailiffs demanding payment of someone else’s debt.
My Taylor Wimpey home has one of the now infamous doubling ground rents and ludicrous permission fees to make alterations or re-mortgage. Buying my freehold (and the statutory route is known as enfranchisement) is the only way to avoid both of these costs and truly own my own home.
As a leaseholder caught up in this scandal it is depressing to hear Taylor Wimpey being publicly praised for setting aside £130m to help solve a problem they created in the first place. A solution whereby they will convert my doubling ground rent to RPI and all will be ok, well so they would like you to believe.
If Gerald Ratner knew this was how things work he might have offered a 1p refund for selling “total crap” and then have kept his job, saved his company £500 million and been told well done by the government.
Other developers with doubling ground rents are following Taylor Wimpey’s lead. For those of us with doublers it’s a simple decision – right?
Under the terms of my new lease the ground rent increases in line with RPI every 10 years for the full term of the lease – 250 years in my case whereas doubling stops after 50 years.
The total ground rent under doubling is just short of £2m.
If RPI continues to increase at the current rate of 3.3% per annum the total ground rent is £25.7m.
Now this doesn’t take into account the time value of money, and costs to enfranchise are highly dependent on the interest rate used to discount future ground rent payments – this is called the capitalisation rate.
Capitalisation rates have historically been at around 7% and according to the leasehold valuers I’m using, the enfranchisement cost under my converted lease is c.£8-11k versus c. £26-36k with my current doubler.
HOWEVER, freeholders are spending lots of money rushing to set case law precedents to introduce a really low capitalisation rate for enfranchisement, somewhere in the region of 2-3%.
At 2% capitalisation rate I estimate the cost of enfranchisement at over £220k plus fees for my doubler versus over £450k plus fees for the RPI lease.
A low capitalisation rate makes enfranchisement more expensive for an RPI lease than a doubler, because the payments keep increasing over the full term of the lease.
I may also need to go to tribunal to get permission fees removed.
If freeholders successfully argue a low capitalisation rate and Taylor Wimpey have capped their corporate liability with settlement agreements on conversion to RPI what a great coup that will be for developers and freeholders – public recognition for solving the problem, unaffordable enfranchisement for leaseholders and a ground rent income stream that rises for the whole duration of the lease supplemented with permission fees.
In January this year the Governor of the Bank of England, Mark Carney, called for RPI to be axed, noting that “most people acknowledge it is of no merit”.
And the Office for National Statistics published an excellent article on 8th March this year on the shortcomings of RPI as a measure of inflation, quoting “Our position on the RPI is clear: we do not think it is a good measure of inflation and discourage its use.”
Why are ground rents with RPI increases acceptable?
If I convert to RPI I have to accept this offer as full and final settlement from Taylor Wimpey.
Why shouldn’t this company give me what they promised – my freehold at any point in the future for c. £5k – and why should I settle for less?
I am absolutely, totally, baffled as to how I can have made the biggest financial purchase of your life yet have less consumer rights than if I had bought a fridge.
What about the thousands of leaseholders who can’t afford to enfranchise regardless of capitalisation rates and are going to be left at the mercy of an index that the Bank of England think should be axed and those hideous, stinging, permission fees?
House prices don’t rise in line with RPI and lenders are tightening the lending requirements on houses with onerous terms including those where ground rent exceeds 0.1% of the property value.
What’s going to happen to all those people with RPI ground rents when this happens? – and yet developers have the audacity to say that they have done nothing wrong with RPI increasing ground rents.
Make no mistake, RPI is not the solution to the leasehold scandal – we are just kicking the leasehold bomb down the road.
We need a Select Committee Inquiry to hold those to account that have created this mess.
We urgently need a way forward to help the thousands and thousands of people who have been mis-sold their homes.
We need to abolish the secondary income from permission fees on leasehold properties – and fleecehold properties (those masquerading as freehold properties with fee paying permissions).
Developers, who created these leases and their CEO’s; Pete Redfern, Jeff Fairburn et al, who have outrageously profited from Help to Buy on new leasehold homes, must be forced to give proper redress and give customers, like me, what they promised – my freehold for £5k.
Taylor Wimpey have known for a long time what the correct solution to this horrific issue is. They have known since October 2015. The money they have put aside should have been used to implement it.
Instead they have chosen the cheapest and easiest way out which has resulted in disaster to thousands of young families and complete loss of their own reputation.
It can still be done. Just buy the freeholds back and sell them to their customers (whether first hand,second hand etc) at the price offered to the original purchaser.
Just do it.
Thousands of us will have asked to buy the freehold and told we could after we’ve moved in, then find out it had already been sold on to someone else (without even being offered it). We bought the property on the pretence that we could get the freehold for approx £4k and not expecting the ‘customer’ to be lied to (by being sold to an investor with hidden permission fees in it). The whole thing is a scandal and is disgusting behaviour. You can see why the developers do it because no one would buy their houses if the truth was revealed and the costs were transparent. This just proves how sneaky they’ve been since they introduced these horrendous leases.
Its beyond me why Taylor Wimpey’s solution to the leasehold scandal is to pay compensation to the freeholders to change the leases to RPI when whoever owns the lease will be better off. Instead of doubling every 10 years to a maximum of 50 years the ground rent will now increase by RPI every 10 years for the whole of the 999 years of the lease.
Taylor Wimpey’s offer is lauded in parliament as a great example for others to follow – but its just a publicity seeking scam
Pro Bono Publico
Why don’t you just sue your incompetent / corrupt solicitors for the difference between the £5k you should have been able to buy your freehold for and the actual cost?
If you used a firm that was recommended by TW there was a blatant conflict of interest, and their insurers would be only too keen to settle any claim so as to avoid setting a precedent.
I would love to do that, the problem is (if you carefully explore how thousands if not millions were duped by the terms in the leasehold agreements and how the small print is even hidden from plain sight) too many people, even myself who read the terms quite a few times realized that the doubling ground rent hits after living in a flat for 8 years, where as the liability of solicitors when you can sue them ends are 6 years. Nowhere in the leasehold terms does is say in my case that the ground rent increases every 10 years. Just small print making it unclear how this works. And I will stress that I have not used the developers’ solicitors, but my own who I have chosen.
Pro Bono Publico
Are you going to guarantee success suing the solicitors. No you can’t and it is just more money for lawyers win or lose.
Only answer is abolitiion
Thank you once again Jo for speaking so eloquently about this. You represent so many of us and we all share a similar story. We were all emphatically let down by the developers, the conveyancing solicitors and the offshore companies and cowboys whose only purpose is to make more money from us and the law which should have never allowed this to happen. Parliament must act to investigate how this was allowed to happen. Taylor Wimpey must be forced to go further in rectifying these issues and giving us back our leaseholds and not just a shabby conversation to an unlimited RPI increase. We have a TW house with a 999 year doubling lease at 295 which just doubled to 590 in January and are left in an impossible position. To any mp reading this, please help us!