The Communities and Local Government Secretary Sajid Javid has announced plans to ban the sale of new build houses as leasehold properties. Mr Javid also revealed plans to restrict ground rents – and in some cases to ‘zero’ ground rents.
The announcement comes in response to the increasing use of leaseholds on new build houses, a practice which may have arisen as a side effect of investors looking for safe returns in a time of extremely low interest rates. Critics have labelled the practice as a ‘money grabbing scheme.’
In 1996, 22 per cent of new build properties were leaseholds. This figure jumped to 43 per cent in 2015. Traditionally, leasehold has been used in England for flats and properties with shared spaces, but the Government estimate that there are now 1.2 million leasehold houses.
Stories have circulated of homeowners who bought leasehold houses finding that the freehold had been sold on to investment companies, who then charged steeply for permission to make changes to the property. In the worst cases, homeowners have found their houses are unsaleable because of the onerous ground rent clauses.
In his announcement speech, Mr Javid said:
“It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiraling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.
Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.”
The proposed prohibiting of future houses being sold as leasehold will apply to all houses, apart from in a few exceptional circumstances where leasehold is still needed – such as houses that have shared services or built on land with specific restrictions.
An eight week consultation was launched on the day of the announcement (25 July), and will run for eight weeks.