What the Government’s Ban on New Build Leasehold Houses Will Mean for Leaseholders


The government has announced plans to combat “unfair and abusive” practices within the leasehold system, the new measures announced by the Communities Secretary, Sajid Javid, include:

  • A ban on almost all new build houses being sold as leasehold;
  • Ground rents on new long lease property being set to zero; and
  • Making it cheaper and easier for existing leaseholders to buy the freehold on their home.

In addition, first-time buyers will no longer be able to buy leasehold houses with the Help to Buy scheme other than in exceptional circumstances, this is in order to protect people buying their first home from unscrupulous charges.

The move to ban the sale of new build homes with a leasehold will apply in all circumstances except where leasehold is required; for example, houses with shared services (such as flats) or those built on land with specific restrictions. The ban is not applied retrospectively, which means only future homeowners will benefit.

While this is welcome news for prospective buyers of new builds, there are also fears that this could have a negative effect for existing leaseholders.

The issues with the UK’s new build leasehold market

Leasehold ownership is where you buy and own the house, but not the land it sits on. This is logical for a block of flats, as people living directly above or below one another cannot all own the land their properties are built on.  However, it does not make sense for houses. The Minister for Housing and Homelessness stated that that level of ground rent bears no relation to the level of maintenance of a building, and so we should consider what leaseholders actually receive in return for their ground rent. Sir Peter Bottomley MP, co-Chair of the APPG on Leasehold and Commonhold Reform, also said that ground rents do not reduce property prices and have no purpose whatsoever.

Recently, it has become common practice for residential property developers to sell new build houses on a leasehold basis, rather than on a freehold basis. This has caused ongoing scandal that has seen developers take advantage of leaseholds to maximise profits, leaving 100,000 families facing crippling ground rents and a difficulty selling.

One issue is that many of these leasehold properties were sold with terms allowing the ground rent to double every ten years, meaning these costs can rise very fast, it may not seem like much if the yearly rent is only going, for example, from £10 to £20, however as the figure rises, the increases become more and more drastic. As a result, many mortgage lenders are not willing to lend on leaseholds with doubling ground rent clauses, making it virtually impossible for some owners to resell their homes.

Another grievance often heard is that developers are selling the freeholds on to offshore firms, making it harder and more expensive for homeowners to buy the freehold when they become eligible to do so. Leaseholders must have occupied a property for at least two years before they obtain the right to force the freeholder to sell them the freehold.

How the changes will affect leaseholders

Although these changes will benefit those looking to buy new build house by allowing them to buy the freehold at the outset, rather becoming trapped into a leasehold deal, some have suggested that these changes will discriminate against existing leaseholders.

The changes could leave existing leaseholders in a worse position, as their houses will seem even less desirable by comparison. As most banks will not grant loans to people buying houses with high ground rents, this reduces the pool of potential buyers to only those who can afford to buy without a mortgage.

There are currently 1.4 million leasehold houses and flats in England where a freeholder retains ownership of the land on which the property stands, and the leaseholder pays a ground rent over the length of the lease along with monthly management charges. For many of these people, the only short term solution is likely to be to buy the freehold on their home, but most of those trapped say their main problem is that they are being asked to stump up huge sums to buy the freehold and cannot sell to others without doing this. Leaseholders will need to pay close attention to the measures put in place with the intention to make this easier and cheaper once more detail about these is revealed.

The Law Commission will also be asked to support existing leaseholders who are looking to purchase their freehold or extend a lease by making the process easier, faster and cheaper. And there will be a wide review of the current support and advice that is available to leaseholders to ensure it is fit for purpose.

The labour party has proposed that leaseholders should be able to buy the freehold of their home for 1% of the property value, which could substantially lower the costs. However, owners of current leasehold flats would still most likely need to band together to buy the freehold of the block. They say this could mean the cost of buying the freehold is slashed from over £10,000 to £2,500.

They also proposed that ground rents for existing leaseholders should be capped at 0.1% of the property value, up to a maximum of £250 a year. This is helpful to existing leaseholders, as if the ground rent goes above £250 per year, the leasehold will become an Assured Shorthold Tenancy. This greatly reduces the leaseholder’s rights and can even result in the freeholder taking possession of the property if the leaseholder falls into arrears with the ground rent, despite the high premium they would have paid upon purchasing the leasehold.

Potential problems which may arise from the change in leasehold regulations

While the leasehold ban is set to make a positive difference to homeowners, some people within the industry have voiced concerns, one being that the Government’s projects for sustainable buildings may be compromised by a leasehold ban, as these programmes may need leasehold or similar to manage communal heating systems, etc.

Another concern is that without the income generated from ground rents, house prices may start to rise in order to help developers cover increasing construction and land buying costs. This could price even more people out of the property market.

The Office for National Statistics has shown a significant increase in leasehold new build houses last year, it is possible that this is a backlash against the ban and a trend that could continue until the new leasehold regulations are enforced.

Protecting your interests when buying leasehold property

When buying a leasehold property, it is essential to understand the full terms of your lease and how these will impact you in the future, including your ability to resell. It is therefore strongly recommended to use a conveyancing firm with plenty of experience in handling leasehold property.

If the solicitor handling your purchase of a leasehold failed to advise you on the implications of a doubling ground rent clause in the leasehold agreement, you may be entitled to compensation.

Disclaimer – Our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.


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