When Clare Budgen bought her first house in Ellesmere Port in 2009 for £155,000 the last thing on her mind was the lease. Taylor Wimpey, the developer, arranged the lease on a 999-year basis, so what could the then 22-year-old possibly have had to worry about?
But just seven years later, when she looked into buying the freehold (to enable her to sell the home more easily in the future) she was astonished to find that, first, Taylor Wimpey had sold her freehold to another company, E&J Estates, and, second, it wanted £32,000.
Paula Richmond is in a similar boat. In 2015, she bought a four-bed house built by Taylor Wimpey in 2011 for £122,000, thinking she had bagged a bargain. Again, the original lease was for 999 years and with 995 more years to go, it was the least of her concerns. At the time, she understood that buying the freehold would cost no more than £2,000-£3,000. But, like Clare, she has found that her lease has been sold to E&J Estates by Taylor Wimpey and has been told by surveyors that she will have to pay up to £40,000 for the freehold – one-third of the house’s value. Paula can’t afford it and says “the house is almost unsaleable”, with solicitors warning potential buyers to stay away.
Like thousands of others in England and Wales, buyers like Paula and Clare (not their real names) have been trapped by a controversial trend among developers to sell homes as leasehold when they previously would have been freehold. The buyers are given reassuringly long 999-year leases – usually it is leases of less than 60 years on flats that are a worry – but later find that buying the freehold is prohibitively expensive.
One surveyor Guardian Money spoke to in Manchester said a client had just been forced to pay £38,000 to buy the freehold on their recently built home, despite its long lease.
The trap for unsuspecting buyers comes from the escalation in ground rent in the small print of long leases. Initially, it looks affordable. The developer gives the buyer a 999-year lease, with the ground rent set, in Paula’s case, at £295 a year. The contract says the ground rent will double every 10 years. This may look innocuous – after all, most people move every seven to 10 years. But to the company that buys the freehold, the income is valuable.
By the time a 28-year-old buyer with a 30-year mortgage comes to the end of their loan term, they will have to pay £2,360 a year in ground rent. And if they don’t pay their home can be seized with no compensation. The companies that have bought up freeholds claim they have to be paid large amounts to compensate them for the loss of income.
“In the past, when a property had a 999-year lease there was almost no value in its reversion [to a freehold]. The ground rent was often just £5, so the capital value of that was small,” says the surveyor in Manchester, who wishes to remain anonymous. But now with ground rents at £295 doubling every 10 years, it’s creating a lot of value in the leasehold. The maths isn’t understood by those buying these houses. It’s a significant problem and is catching out solicitors too.”
According to government figures, around 6,000 new houses were sold as leasehold last year. While in the past, homes on new-build estates were sold as freehold, Persimmon, Taylor Wimpey and Bellway now regularly sell estate houses as leasehold. At new developments currently for sale, we found a range of ground rents, with some doubling every 10 years and others rising at the level of the retail prices index (RPI), which makes them potentially less onerous, but still expensive.
Justin Madders, MP for Ellesmere Port and Neston, whose constituency covers Clare’s home, calls the situation “morally indefensible”. He says: “I have had a number of constituents contact me, saying they were aware at the time of purchase that the freehold was extra. However, they didn’t know the original developer sold the leaseholds to private investors who have ruthlessly exploited the law to line their own pockets.
“The prices they have been quoted to buy the freehold have rocketed beyond any reasonable sum people can afford. I have found constituents are unable to afford the fees being quoted and there are extortionate charges associated with obtaining permission to alter the property. Just over £2,500 was quoted for permission just to build an extension.”
It is easy for buyers to miss the fact that the property is leasehold. For example, Persimmon’s Agusta Park development in Yeovil, Somerset, comprises two-, three- and four-bedroom homes, all leasehold. We could find no prominent mention on Persimmon’s website, or in the brochure, that the homes were leasehold. When we rang posing as the friend of a potential buyer and asked for details about the lease, we were told it was for 999 years and the ground rent was £150, then £190. After some confusion, we were told the ground rent would go up every 10 years using a formula linked to the RPI.
“It’s a 1,000-year lease. If she lives to 100 there will still be another 900 years to go. It’s virtually freehold,” we were told. “Flats are always sold as leasehold. Lots of [house] developments are going this way now. People are scared of change because it’s something new. But it’s virtually freehold.”
We asked if the freehold could be purchased. “It’s not available at the outset, but can be bought within two years.” We asked to be guided on the price of buying it. “I’ve no idea. We don’t quote on the price of the freehold,” was the response.
Potential buyers allege they are not told about the leasehold until late in the process. “We were about to purchase a new house when we noticed that part of the communal charge for the upkeep of open spaces was for ground rent,” says one Guardian Money reader, who alleges that at no stage was the word leasehold used by the salespeople, nor was it in any of the documentation signed.
The reader says they pulled out of the purchase of the Persimmon home after seeing stories of housebuilders charging tens of thousands of pounds to purchase the freehold and large fees just to give permission to make alterations, such as installing a conservatory.
What the builders say
We asked the big developers why they are selling houses as leasehold. Persimmon says: “Persimmon sells a mixture of both leasehold and freehold properties. As Persimmon has acquired other companies over the decades, it has inherited the freehold reversions of leasehold properties sold by those businesses. There are around three million leaseholders in Britain. All Persimmon leasehold houses carry an extremely long 999-year lease and customers are informed at purchase what type of property they are buying.”
It refused to provide details of the typical ground rents charged or how much it earns from selling freeholds. It also declined to say what fees, if any, leaseholders might have to pay for things such as a conservatory.
We asked Taylor Wimpey about the cases involving Paula and Clare. It confirmed it had sold their freeholds to E&J Estates, but did not disclose the price, and would not comment on the £32,000 E&J Estates wants from Clare for the freehold on her home.
We also asked about its new developments, such as Dale Moor View in Rossendale, Lancashire, where all the homes are leasehold. In a statement, it says: “At Taylor Wimpey the vast majority of our houses are sold on a freehold basis. However, in a small number of developments, predominantly in regions of the country where it is common practice in the market, we sell houses on a leasehold basis. Throughout any sale process, customers are fully informed of the ownership structure of the home. If a customer is interested in such a property, the sales team advises them whether the property is being sold on a leasehold basis.”
E&J Estates said it was “unable to comment on this matter but will always engage with individual leaseholders”.
What can be done?
Campaigners say issues around leasehold properties will be top of the agenda for an all-party parliamentary group on leasehold and commonhold next month. It has attracted 43 MPs and lords, and is chaired by Labour MP Jim Fitzpatrick and Tory Sir Peter Bottomley. Members include Sir Keir Starmer, Emma Reynolds and Barry Gardiner.
Sebastian O’Kelly of support group Leasehold Knowledge Partnership says: “It is disgraceful that plc housebuilders are building leasehold houses that ordinarily – and until recently – would have had freehold title. This is an erosion of the wealth of ordinary people at the expense of the rich.
“Young people, after years of paying rent, finally buy a home and then find they are still, in fact, tenants – which is what a leaseholder is – with all the vulnerability that that implies.”
He adds: “The housebuilders are evasive over this issue and it beggars belief that the outrageous ground rent multiples come from household-name builders. There is no attempt to justify the adoption of leasehold tenure for these houses, which are not complex communal sites such as blocks of flats.
MP Justin Madders is calling for a ban on leasehold for estates of houses. “It is clear this system is being abused to drive huge profits at ordinary homeowners’ expense. There is no need for there to be leasehold properties, particularly those on an estate where the properties are mainly detached houses.
“They need to be banned – it may be a convenient way for developers to get extra profit from their building work, but once they get in the hands of these private equity companies the profit motive overrides any considerations that there are real people living in their homes, who are being asked to stump up eye-watering sums.”
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