Research has discovered many homes purchased using the Help to Buy scheme will be affected by these sales, which can result in properties becoming hard to sell or remortgage.
Now homebuyers considering a leasehold property are being urged to seek legal advice before going into the transaction to ensure they are aware of their full obligations.
What is leasehold?
When a property is bought on a leasehold basis, the owner of the home does not own their property outright. Instead they must pay the owner of land on which the property was built – the freeholder – annual ground rent.
This is very common with flats or apartments. However, it emerged last year developers were selling many new-build houses with leaseholds – a practice branded as unscrupulous by the Government.
What are the problems with leasehold?
It was found many buyers had been sold leasehold homes and then the original developers had sold the freehold on to third parties, who then hiked the ground rent to exorbitant rates. In some cases they doubled it after ten years. It’s been put on a par with the PPI mis-selling scandal and has led to some homeowners becoming ‘leasehold prisoners’ – unable to sell their homes because of the huge leasehold charges.
This prompted the Government to propose a ban last December. In October it released a consultation document saying it was being phased out by developers and James Brokenshire MP, the housing secretary, renewed the Government’s pledge to prevent the practice.
Investigation
However, new research by property advice site, Move iQ, has found over 2,600 new build leasehold houses had been sold a year on from the proposal to ban the practice. Official data from the Ministry of Housing, Communities and Local Government also revealed the tax-payer funded Help to Buy scheme, which provides a loan the deposit on a new build home, has subsidised many of these purchases.
Indeed, Move HQ’s investigation discovered more than 30 Help to Buy-funded leasehold properties – a quarter of which were houses – were sold in the six months following the Government’s announcement.
Get legal advice
Phil Spencer, co-founder of Move iQ, said thousands of buyers were still being allowed to sleepwalk into leasehold limbo. He has urged anyone buying a leasehold property to do so with ‘their eyes wide open’ by taking legal advice to understand the obligations that go with owning a home this way.
“While leasehold tenure is normal for flats,” he said, “the Government says it is determined to stop newly-built houses being sold this way – while at the same time offering to Help to Buy incentives. These mixed messages are deeply confusing.
“When the ban comes in, there should be some redress for the thousands who have bought leasehold houses.
“At the very least they should be given first refusal on the freehold of their home at a reasonable rate, before it is sold to a third party.”
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