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You are here: Home / Commonhold / Time to ‘get political about leasehold’, says the Financial Times

Time to ‘get political about leasehold’, says the Financial Times

May 5, 2017 //  by Sebastian O'Kelly

The Financial Times today produces an important article urging reform to protect leasehold property owners.

Now is the “perfect time for the political parties to grasp the deadly nettle of leasehold property”, says Lindsay Cook, who wrote a brilliant article on leasehold in July.

Leasehold is a feudal, wasting asset with opportunities for exploitation, says the Financial Times in a devastating article

She writes that leasehold has doubled over the past 10 years from 22 per cent to 43 per cent of sales.

The FT discusses commonhold tenure, which involves the indefinite freehold tenure of a multi-occupancy building with shared ownership of, and responsibility for, common areas and services.

“Commonhold just works,” the FT quotes Sebastian O’Kelly, of the Leasehold Knowledge Partnership. “It is on the statute book. It is what the rest of the world, including Scotland has.”

By contrast, he says the leasehold tenure gives “ample scope for exploitative and semi-criminal behaviour”.

But the FT points out that not many of the large volume lenders are geared up for commonhold properties, according to the CML, although mortgages are freely available for shared-freehold flats.

LKP reported a commonhold site in Pickering, North Yorkshire, called Spire View. Ironically, it was taken into receivership by Royal Bank of Scotland during the downturn, which won’t issue mortgages on commonhold title.

Welcome to Spire View, our commonhold paradise …

This is doubly ironical given that RBS was doling out loans on every flakey property asset going.

When it actually owned a site with absolute security of tenure, it was more happy with leasehold – even though banks are hitting the brakes now they realise how lease terms are eroding values.

The FT article references the Taylor Wimpey £130 million to sort out customers disadvantaged by doubling ground rents on leases drawn up between 2007 and 2011.

It also reports the decision of Nationwide yesterday, announcing it would not lend against new-build leasehold property under its “minimum acceptable” terms of 125 years for flats, and 250 years for houses.

In addition, Nationwide’s “maximum acceptable starting ground rent on all new-build properties will be limited to 0.1 per cent of the property’s value”.

The FT says this is “a welcome step — but it will not help existing owners of new-build leasehold homes”.

Nationwide bans mortgages on doubling ground rent properties

The government has indicated that it will legislate “to stamp out” leasehold abuses. Sajid Javid, the secretary of state at the Department of Communities and Local Government, told MPs: “I don’t see how we can look the other way while these practically feudal practices persist.”

He said he planned to ensure that Help to Buy equity loans would only be available “to support new-build houses on acceptable terms”, and that leasehold abuses should be added to consumer protection laws.

However, the CML is concerned that a crackdown on leasehold new-build houses could potentially blight all existing leasehold properties.

CML says lenders ‘reviewing loans to reflect concerns about onerous ground rents’

Ripe for reform

The more you look into leasehold, the more you realise how the whole system urgently needs reforming, Lindsay Cook writes.

“So come on, politicians. It’s time to give greater consumer protection to millions of leaseholders in England and Wales, and seriously consider commonhold as an alternative.”

The FT offers this checklist for homebuyers

  1. Do not buy a leasehold house; there is little or no reason to do so, especially as they are usually not cheaper than freehold houses.
  2. Check the ground rent of any leasehold property and whether it will increase over the years.
  3. Do not consider buying a property with less than 85 years on the lease.
  4. Check which charges are included in the service charge. This is especially important with a new-build. If it looks too cheap for the services provided, expect the cost to rise once the whole development has sold.
  5. When buying from an existing leaseholder, there should be a record of the costs in previous years
  6. Ask the vendor whether there have been problems with the service charge.
  7. Leaseholders must always pay their service charge or ground rent — even when there is a dispute — as there is a risk that they can forfeit their property if they get into arrears. About 130 applications a year are made and about 65 leaseholders lose their properties.
  8. Beware if you buy a former council property; you can be hit with very large bills for repairs as such properties do not operate funds to cover major expenditure.

Related posts:

‘Fright night’ for Taylor Wimpey as profits fall 24% over leasehold scandal, says Times Taylor Wimpey’s Pete Redfern tells FT ‘we got it wrong on ground rents’ Leasehold is a feudal, wasting asset with opportunities for exploitation, says the Financial Times in a devastating article Housebuilders ‘pimp their profits’ by selling freeholds, says Financial Times columnist The Sun / The Times urge caution over leasehold purchases, while The Times / Guardian / Mail report Barratt paying out £2m at Citiscape

Category: Commonhold, Latest News, News, Press, Taylor WimpeyTag: Financial Times, Lindsay Cooke

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Previous Post: « Nationwide bans mortgages on doubling ground rent properties
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Reader Interactions

Comments

  1. Paddy

    May 5, 2017 at 2:00 pm

    And of course all that will happen is outlawing leasehold houses. Flats are far too lucrative.

    I’m assuming the Nationwide’s minimum 125 year term is the death toll on their being one of the few lenders willing to mortgage a 55 year lease?

    All existing owners could end up far worse off at the end of this recent “awakening”.

    It’s not as if MPs didn’t know leasehold was feudal exploitation when they tinkered with rights that made huge loops both legal and costly for leaseholders to gain freedom to self manage.and a bit of fairness.

  2. Michael Hollands

    May 6, 2017 at 9:01 am

    Over the past 7 year I have always found the DCLG very uncooperative and they tended to dismiss any reforms, whoever the Housing Minister happened to be.
    I hope all this emphasis (quite rightly) on Leasehold.houses does not mean any reform for flat leaseholders gets put on the back burner.
    Little has changed for them over 7 years particularly for those in Retirement complexes. Unfair Exit Fees, high ground rents and service charges still abound.
    Even price fixing was not considered to be a punishable offence.

  3. Joe

    May 6, 2017 at 9:34 am

    Great contribution by Lindsay Cook.

    How about an article on Conflicts of Interest between public and private sector.

    Govt money is pumped into LEASE and Housing Associations. Yet Roger Southam openly promotes how to make money from leaseholders. and HAs act immorally.

    Housing Associations are copying the dodgy private sector abuses of double ground rents, overcharging etc and ripping off their affordable homes tenants. Is Nick Walkley new CEO going to address these abuses ?

    London regeneration sites at Greenwich, Acton gdns, Jigsaw Ealing etc have lease conditions selling reversionary rights to HAs.

    A typical example is London and Quadrant ‘have a right of first refusal in purchasing the ground rent’. !! These are doubling ground rents !! Why are charities copying the aristocrats like Will Astor and the Duke of Westminster.

    I have not seen any reporting of HAs linked to the rip offs in new build.. Public money is effectively subsidising charities to rip off their own tenants.

    The Housing Communities Agency and Aldwyck say they are not interested in terms of the lease or the lenders criteria. None of these public bodies accept any responsibility or get held to account for the billions they are now handing out. It would be nice to hear their side of the story but just silence and business as usual.

    If the Nationwide suddenly has a problem with doubling ground rents and short lease terms why does the brainless Aldwyck and DCLG not have a problem ?

    This is a very serious question that needs to be answered. Looks like negligence and breach of duty of care to the consumer but like Roger Southam they will say it’s not my remit and blame someone else.

  4. I liddle

    May 6, 2017 at 10:14 am

    Leaseholders both in flats and houses are often trapped in properties that they are unable to sell due to dwindling leases . In some parts of the country such as the north east where I live the 99 year leases are now below 55 years, and due to the cost of extending formally, or buying the freehold at a huge cost, people are unwittingly going for the informal option, with little outlay, but with onerous terms that they don’t realise the implications of. Once the properties become unsellable landlords buy them up cheap for cash and then the rot sets in. Estates which were once full of families now become rundown and filthy. Everybody buying leasehold now or in the past is a victim of this unfair form of tenure. The government has no excuse for letting this situation continue, and if the banks won’t lend on short leases then what ?

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