Ban on new-build leaseholds to come into force

Blue Door Stock

Buying a home is, for some, one of the most expensive, yet most rewarding aspects of modern life. Having your own plot of land with a house on it is something to be proud of.

However, there’s been a trend, perpetrated by many building companies, to sell brand new houses as leasehold and include a hefty lease fee into the bargain.

This has come as a shock to some owners, as they’ve expected their homes to be freehold, with no more costs associated with it.

It’s probably worth explaining the difference between the two before we get into the detail.

Freehold

This is the most common form of property ownership. When you buy a house, you are also buying the land on which it stands, and there are generally no other costs associated with it, other than the on-going mortgage and repairs.

When you sell, you sell everything including the freehold.

Leasehold

This is a method that up until recently has been most common with flats and apartments. You generally own the property, but not the land on which it stands, meaning you often have to pay on-going fees.

The new-build trap

When buying a new build house, many have not even seen the status of the land as a problem. Even when sold as a leasehold, many developers have arranged 999 year leases which on the face of it, seems fine. The owners have been told that if they want to buy the leasehold in the future, they would have to pay around £2000.00.

However, some of these developers have then sold these leases on to investment companies, and when owners then enquired to buy, the prices had increased as much as tenfold.

Why do companies buy the leasehold?

When you have a leasehold, there is also an associated ground rent. Although starting low, it often doubles every ten years, which to many people is a long way off, far too long to be bothered about right now, so they often let it pass.

30 years down the line, this is worth upwards of 3K per house per year, which is why so many companies are interested in them.

What the government is doing

After pressure from many groups and homeowners, these contracts will now be illegal, and new build houses will need to be sold as freehold.

Of course, developers want to make money. Many people who bought on these terms did so because the house prices themselves were relatively low. With the leases being sold on, the developers had a different stream of income. However, they’ll now have to look elsewhere for more transparent ways of boosting their profits.

What does this mean for the house buyer.

You can buy with confidence, knowing that you are the Freehold owner of, not only the bricks and mortar, but also the land your home sits on. No ground rents, no nasty surprises a few years down the line, and no unnecessary difficulties when selling your home that some leasehold contracts can cause.

 

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