Government bans leaseholds on newbuild houses

‘It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms,’ said Communities Secretary Sajid Javid

Homebuilders have been criticised for inserting clauses into leases which double the ground rent every ten years (Getty)

The UK Government is cracking down on the “feudal” practice of leaseholds for almost all newbuild houses to protect buyers from extortionate costs.

Communities Secretary Sajid Javid said the Government is banning the sale of newbuild leasehold homes – first announced in July – and is also setting ground rents on new long leases on flats and houses to zero.

The Government will also make the process of buying a freehold or extending a lease “much easier, faster and cheaper”.

“It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms,” Mr Javid said. “It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices.”

There are currently 1.4 million leasehold houses across England and the number of leasehold sales is rapidly growing. The freeholder of a property owns the land outright, including the land it is built on. Most houses are freehold, but some are leasehold.

The difference with a leasehold property is that you own the property and its land for a fixed period of time depending on the agreement you have with the landlord – effectively making you a tenant.

Leasehold generally applies to flats with shared spaces to multiple ownership straightforward, but developers have been increasingly selling houses on these terms, adding further costs to over-stretched house buyers, the Department for Communities and Local Government said.

The crackdown is in response to the growing problem of leases on homes which have rapidly rising rents.Homebuilders such as Taylor Wimpey have been criticised for inserting clauses into 999-year leases which double the ground rent every 10 years, making them impossible to sell in the worst cases.

In fact, many lenders – including Nationwide – won’t even grant mortgages on properties with onerous ground rent terms, leaving homeowners trapped if they can’t sell.

“The Government is now backing Labour’s proposals to end the routine building of new leasehold houses and crack down on escalating ground rents,” said Shadow Housing Secretary John Healey. “However, ministers must do more to help home-owners in existing leasehold houses and flats who have insufficient protection against exploitative freeholders and their agents.”

Paula Higgins, chief executive of consumer group the HomeOwners Alliance, welcomed the news and called for a ban on ground rents for all leasehold properties. “Nothing has been said about the people who are currently trapped in the extortionate ground rent and leasehold scandal and how they will be helped,” she said. ”And those who have been paying ground rent for years and will need to extend their leases soon.

“There should be legal caps on ground rents of all existing properties as a proportion of the value of a property, and a ban on ground rent on all lease extensions. The idea of freeholders being able to charge ground rent on all properties – new and old – should be outlawed completely.”