The Sunday Times reveals leaseholders who are still caught out by aggressive ground rents traps dreamed up by plc housebuilders and the investment asset – the freehold – sold to murky offshore private equity punters
Thanks to the National Leasehold Campaign for raising this issue in the national press
The ongoing cheating of ground rents linked to RPI (Retail Price Inflation) was revealed in The Sunday Times yesterday and revealed as more onerous than ten-year doublers in periods of high inflation, like now with inflation at 12%.
This is a point worth remembering as Taylor Wimpey – imitated by other developers and some freeholders – offered to vary leases with ten and 15-year doubling ground rents to rise with inflation instead.
Ten-year doubling ground rent equates to 7.18 per cent interest and 15-year doubling ground rent is equivalent to 4.8 per cent.
According to Taylor Wimpey, 5,400 former customers signed up to change from doubling ground rent to RPI – which for opaque reasons, now almost certainly regretted, were more acceptable to mortgage lenders.
Taylor Wimpey still persists in pretending that this sleight of hand was an improvement on their original cheating of their own customers.
Although thousands of leaseholders were recently freed from ground rent, many are still stuck with inflation-linked costs, Melissa York reports
It climbed down after pressure from the Competition and Markets Authority as part of its mis-selling investigation into leasehold homes with aggressive, wealth eroding lease terms.
Having launched its Grent Rent Riew Assistance Scheme in 2017, it had to further climb down by scrapping it 22 December 2021 and doing what the CMA said.
This is how Taylor Wimpey dressed it up in its announcement:
“Building on the company’s Ground Rent Review Assistance Scheme (GRRAS scheme) – which was launched voluntarily and proactively in 2017, we have given voluntary undertakings to the CMA. The CMA acknowledges that the GRRAS scheme has helped over 5,400 customers convert their ten-year doubling ground rent leases to an industry standard RPI-based structure, at Taylor Wimpey’s cost, and addressed the concerns raised regarding mortgageability or saleability of these properties.
“The undertakings mean that Taylor Wimpey is taking the following additional steps in respect of leases that contained a ten-year doubling ground rent clause when originally issued by Taylor Wimpey.”
The Sunday Times highlights the case of Keith Hince, 71, who in 2012 bought a leasehold house in Canterbury, in Kent – the newspaper omits to say that the developer was Bellway and the freehold was scooped up by the anonymous private equity punters who invest in Will Astor’s Long Harbour Fund, with ground rent collected by HomeGround.
The property had an initial ground rent of £250 a year, which increased after eight years in line with RPI, then every six years afterwards.
Lenders won’t provide a mortgage once ground rent is more than 0.1 per cent of the value of the property, which Mr Hince’s ground rent has already exceeded.
Mr Hince’s next review was due in October 2024, but he bought his freehold last month after two years of negotiations at a cost of just over £10,000.
“A lot of people think that ground rent is giving money to a person who will invest it in the site, but it just goes straight into the pocket of a freeholder that is based in Jersey or some tax haven most of the time. The whole thing is appalling,” he says.
In September 2019 Mr Hince wrote to Jason Honeyman, CEO of Bellway, that the aggressive ground rent terms were not explained at sale “which consequently prevented us from making an informed decision”.
The service charges on the estate had also escalated.
Fifteen businesses to remove costly ground rent terms Over 3,400 leaseholders’ ground rents will now remain at the amount charged when their home was first sold CMA Chief Executive says more housing developers to be put ‘under the microscope’ as investigation continues Fifteen businesses which had bought freeholds from housing developer Countryside have now given formal commitments – known as undertakings – to the Competition and Markets Authority (CMA) to remove terms that cause ground rents to double in price.
“The businesses, which include investment firms and housing associations, will also remove terms which had originally been ground rent doubling clauses, but were converted so that ground rent increased in line with the Retail Prices Index (RPI). The CMA believes that the original doubling clauses were unfair terms and should therefore have been fully removed, not replaced with another term that increases the ground rent.”
The article also highlights the case of Quentin van Genechten, 29, a marketing executive, who bought a two-bed flat at the Royal Arsenal Riverside development in Woolwich, southeast London, from Berekeley Homes.
Ground rents are £425pa and rises in line with RPI or doubles, whichever is lower, every 21 years for the entire term of his 999-year lease. This is a worse deal than the banned doubling ground rents, which stop rising after 50 years.
Unfortunately, he paid a deposit on the property before June 30 when the Leasehold reform (Ground rent) Act became law ending new ground rents.
Report your case to the Competition and Markets Authority here. If you wish to provide information to the CMA please use one or more of the following email addresses below:
Mr Van Genechten asked Berkeley Homes whether it would reduce his ground rent to peppercorn out of “decency”, but it would not do so.
“I can’t prove it but I’m pretty sure there are flats in the same building that have a peppercorn ground rent because they were bought later.”
In fact, he could prove this by looking at the Land Registry details of any property that was sold, in entirety, after 30 June 2022.
He is worried his new flat will be harder to sell compared with flats which do not have ground rents.
Preposterously, Berkeley Homes declined to comment to The Sunday Times about this case, which is one of several that LKP is aware of.
Another case in Melissa York’s Sunday Times article concerns Sashikanth Dareddy, 37, who bought a 25 per cent share from One Housing in a three-bedroom “affordable” flat in Beckton, east London.
It was only when he “staircased” to 100 per cent ownership in 2019 that he discovered a “minimum rent” clause for £750 a year that increases in line with RPI every five years.
This is a truly disgraceful example of financial gaming of ground rents in the shared ownership market.
LKP is unaware of the housing association, or possibly commercial developer, who dreamed up this toxic lease which does the precise opposite of what shared ownership intended: punishing 100% owners for having at last achieved their dream of full home ownership.