Rip-off leaseholds trapping thousands of families in homes they can't sell to be investigated by regulator
AN investigation into questionable leases that trap families in homes they can't sell is to be launched by the competition watchdog.
The Competition and Markets Authority will look at whether leases have been mis-sold and will dig into whether certain terms are fair.
It expects to launch the probe in the coming weeks and warns that it will use its consumer powers to take action against firms.
The news comes after the Housing Communities and Local Government Committee called for an investigation into the potential mis-selling of leases.
Just this week The Sun reported how thousands of families are trapped in homes they can’t sell because of doubling ground rent clauses.
We spoke to one reader who faces having her home repossessed as she can't meet the mortgage repayments or sell it because of a clause that sees ground rents rise to £8,000 a year.
What if I want to buy a leasehold, what should I look out for?
ANDREW Johnson, money expert at the Money Advice Service has some tips on what to consider before buying a leasehold.
- Check how many years are left on the lease. You may struggle to get a mortgage on a leasehold property which has less than 80 years to run. A short lease will be a lot more expensive to extend.
- Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your property's saleability in the future.
- Ask how much the ground rent is. This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
- Ask about service charges and other related costs. This generally covers repairs or maintenance to the property including building insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
According to the Government, around 4.3million homes – both flats and new builds – in England are leasehold.
This is where you own the property for a fixed period of time but you don't own the building or the ground it sits on.
Because of this, the leaseholder typically pays an annual ground rent to the freeholder who owns the building.
But the problem is that many of these homes are sold with terms and conditions that sees ground rents double every 10 years – and mortgage providers are now refusing to lend or remortgage on these properties.
It's not clear how many people this affects but Housing Minister Heather Wheeler recently suggested it is between 12,000 and 100,000.
A report by trade body NAEA Propertymark found that more than half (57 per cent) of leaseholders didn’t understand what being a leaseholder meant, while 48 per cent were unaware of escalating ground rent clauses.
To make matters worse, some leaseholds are often quickly sold on to third parties, despite home buyers being told they would have the opportunity to buy the freehold, which would then vastly increase the cost.
There are also issues over leaseholders being required to pay high fees to make minor cosmetic changes to their homes, such as changing a doorbell.
What can trapped leaseholders do?
Here's what Sarah Osborne, a partner at Hart Brown and the firm's head of leasehold enfranchisement, recommends:
- Consider suing your conveyancer. You may be able to argue that you were never told about the doubling ground rent clause or the fact that the freehold could be sold on. If you launch a negligence claim it could see your lease rectified or varied with the conveyancing solicitors bearing the cost. But you must claim within six years from the date the advice was given.
- Request a lease extension. If you've owned the property for over two years you have a right to request an extension to your lease of an additional 90 years on top of your current lease term and more importantly, reduce the ground rent to a peppercorn (nil rent). This is a known as a statutory lease extension claim. But you will have to pay for this, as well as cover the cost of legal fees. If your request is rejected you can't take your freeholder to court.
- Convert your propety to a buy to let. If you don't live in the home, consider converting it to a buy to let property so you can at least earn rent from tenants while you wait for the lease problems to be resolved. Check with your mortgage lender if this is possible or use a broker to find the best alternatives.
- Beware the smallprint in Taylor Wimpey's assistance programme. If you sign up to Taylor Wimpey's leasehold review scheme you could have your lease rectified or varied. But even if Taylor Wimpey does align your ground rent with RPI be careful of the exact terms as it may suggest increases are upwards only, which means rents won't fall if RPI falls.
In a letter to the Housing, Communities and Local Government Committee, Andrea Coscelli, chief executive of the CMA said the watchdog acknowledges concerns the committee raised.
The letter said: "We have therefore decided that we will investigate to see the extent of any mis-selling and onerous leasehold terms, including whether they might constitute 'unfair terms' as legally defined.
"We propose to use our consumer protection law powers as the most effective way of doing this, rather than by way of a 'market study' at this stage, which might in due course lead to our bringing enforcement proceedings if the evidence we uncover would warrant that."
A CMA spokesperson added: "The select committee has raised serious concerns that many home owners who buy long leasehold property don't know exactly what they are signing up to, and may be trapped in contracts with unfair terms once they move in.
"We have committed to investigating whether these home owners are being hit with expensive fees or unfair contract terms, as well as being given all the information they need before signing on the dotted line.
"We will set out the full terms of this work when it begins."
Committee chair, Clive Betts said: "Home buyers need to be protected and, where evidence of mis-selling is proved it is right that the CMA take action."
The Government has been consulting on a shake-up to the leasehold system since 2017 and has promised to ban leaseholds on new properties.
But this doesn't help those already with a leasehold home – an issue it's still looking into alongside the Law Commission.
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