Christine and Daniel Harrison have to stump up hundreds of pounds every year just for the privilege of living in their own home. And this ‘fee’ has nothing to do with their mortgage.
When the couple bought their new-build five-bed house near Ormskirk, West Lancashire, for £600,000 six years ago, they had no idea the property was on a leasehold until they were just about to buy it and felt it was too late to back out.
Now they face a choice of paying £350 a year in ‘ground rent’ to the freeholder Aviva-owned Mainstay Residential, or forking out £11,500 to buy the freehold.
This means they own the right to occupy their home, but the land on which it is built is owned by a freeholder or landlord.
‘The ground rent is money for old rope,’ says Christine. ‘We get nothing in return.’
Nightmare: Jo Darbyshire faced a £40,000 bill for her freehold after it was sold to an investment company
The couple, who live in the Morris Homes- built house with their 17-year-old son and daughter, 15, also pay a separate maintenance charge of £80 a month.
Now Christine and Daniel — who are among ten million people in England and Wales who are leaseholders — have another worry to contend with.
Under reforms expected to be announced next week, new houses will have to be sold as freehold, which means new owners will not find themselves in their situation of paying ground rent to someone else.
Levelling-up secretary Michael Gove said the bill will help to ‘restore true ownership’ to buyers and phase out the ‘feudal’ leasehold system.
But what about existing leaseholders? Will they be stuck with undesirable properties as buyers seek out homes without leasehold restrictions and costs? Or is there support for current leaseholders as well? Money Mail investigates.
What about existing leaseholders?
The ban on leaseholds does not apply to existing houses. However, experts predict the announcements will include some measures to ease the plight of existing leaseholders.
Ministers plan to cap all ground rents paid to the freeholder on new leasehold properties at a minimal — or ‘peppercorn’ — rate.
The Government has already legislated to place an upper limit on ground rents for new properties.
It is expected to be one of the first pieces of legislation introduced before Christmas. But some experts are predicting that the rules will also protect existing leaseholders from excessive costs.
These charges have been known to swell to unsustainable levels. In some cases they have risen either in line with the Retail Prices Index (RPI) or doubled every decade.
Reforms: Levelling-up secretary Michael Gove
Many have struggled to pay the bills, secure a new mortgage or sell their property as a result.
Sebastian O’Kelly, chief executive of charity the Leasehold Knowledge Partnership, says it is unclear how far the Government will go to protect existing leaseholders, but he expects the incremental increases could be capped.
He says: ‘The Government could address the terms by which ground rents increase, for example by saying they can’t rise by more than a certain amount.’
However, even if costs are capped, there is unlikely to be any compensation for house owners who have already been forced to pay large sums to buy their freeholds to escape eyewatering ground rents.
Jo Darbyshire is among those who believes this is unfair. She faced a five-figure sum to buy the freehold of her house — in a nightmarish negotiation that lasted a decade.
Jo and her husband Mark, 54, bought a five-bedroom newly built detached house near Bolton for £395,000 in 2010.
They had purchased the home with a 250-year leasehold. At the time they couldn’t afford to buy the freehold, but say they were told they could buy it at a later date for around £5,000.
But a couple of years later the leasehold was sold to an investment company, which hiked the cost of buying the freehold to £40,000.
The couple were told the ground rent could double every decade unless they purchased the freehold.
This could soar to a maximum of £9,440 a year after 50 years. In 2020 it had already risen to more than £400 a year. Pensions administrator Jo, 53, believes the ban on leasehold homes should be extended to all house owners.
‘It is welcome news that all future leaseholds for homes such as ours are to be banned but surely, we all deserve to be treated fairly,’ says Jo, who is the co-founder of action group the National Leasehold Campaign.
It will be easier to increase leases
Homeowners who remain trapped on leaseholds will be freed from some of the restrictions they impose.
The standard contract lease extension will also be altered from 90 years to 990 years, under the new proposals.
Under the current rules, homeowners who have owned their home for at least two years have a statutory right to extend their lease by 90 years for a flat or 50 years for a house.
However, this is due to be extended to 990 years and homeowners will no longer need to have lived in the property for two years before they can negotiate an extension.
Generally, the less time left on the lease, the less valuable the property becomes. This means that such a large extension could add thousands to the value of a property and free homeowners who were unable to sell their property previously.
Protection: Ministers plan to cap all ground rents paid to the freeholder on new leasehold properties at a minimal — or ‘peppercorn’ — rate
Leaseholders are also set to benefit from the increased value to their home if they do choose to extend their lease, under the proposals.
The value of a home with a short lease jumps when the lease is extended. The profit on paper that the leaseholder makes by extending is called ‘marriage value’. However, if your lease is less than 80 years, you must split the marriage value with your freeholder.
As part of Gove’s sweeping reforms, this marriage value is set to be abolished. This means homeowners will be able to keep the full amount their property increases by if they pay to extend.
It could take time to see benefits
The improvements for leaseholders will not be immediate and it could take time for them to affect the value of their properties.
For the time being, some leasehold house owners may find it harder to sell as potential buyers choose to steer clear and opt for the ease of a freehold house instead.
Joanne Tracey put her four-bed detached home in Erdington, West Midlands, up for sale five months ago for £325,000 — £25,000 less than it was valued at.
She expected a quick sale thanks to the reasonable price and because similar properties in the area typically sell within six weeks.
But Joanne believes buyers are being put off because her house is owned on leasehold. ‘The risk of taking on a costly leasehold has sent prospective buyers running,’ says the children’s home services manager and mother of four.
Future owners can apply to buy the freehold. But they would need to apply to find out how much it would cost as the charge is not fixed. And even applying to find that out would cost £200 — a further deterrent to buyers.
Joanne believes the new rules banning leaseholds should apply to existing as well as new houses. ‘All we ask is that necessary changes to the leasehold rules are applied across the board,’ she says.
What help is there for flat owners?
The proposals to ban the sale of leaseholds will not extend to new flats. Seven in ten leaseholds are flats, according to estimates from the housing department.
However, Mr O’Kelly says the new reforms may not apply to leaseholders immediately but the impact will eventually trickle down to benefit everyone.
He predicts that freeholders will no longer be able to charge excessive costs to leaseholders because the ground rent element will be capped under the new changes.
‘The only legitimate income that freeholders are making from a block of flats has now been capped for new flats,’ he says.
‘This will expose any underhand costs they were charging like fiddling with insurance costs or appointing their family and friends to change a lightbulb at £5,000 a time. The game is up. Housebuilders will not want to get a leg up over their customers in that way anymore.’
Housing campaigner Harry Scoffin says the ban on leaseholds should include flats. He says: ‘The new reforms don’t scratch the surface for leaseholders of flats and will not go far enough to redress the structural unfairness of the system.
‘The system means households get none of the control or autonomy that should flow from home ownership.’
Additional reporting:
LUCY EVANS and TOBY WALNE
