In an article on this Blog in September 2020, I examined the highly contentious issue of leasehold houses, dubbed the “fleecehold” trap. For thousands of people, it means that in addition to their mortgage payments, they are tied into contracts requiring them to pay ground rent to the freehold owners. Should they wish to extend or carry out alterations to the property, some face the prospect of hefty fees to gain freeholder approval.
I reported that an investigation by the Competition and Markets Authority (CMA) had found that the annual cost of many ground rents soars swiftly, with some doubling every ten or fifteen years. As such, freeholds have become attractive to investors, with developers typically selling them on to investment companies.
Mis sold new build property
The CMA also expressed concerns over mis-selling, with many buyers told by site agents they would be able to buy the freehold of their home for a modest sum at a later date. In reality, they have discovered that the cost will be many thousands of pounds. In addition to the escalating cost of ground rent, this has resulted in homes becoming effectively unsaleable.
At the time, Housing Secretary, Robert Jenrick, described the developers’ practices as “shameful” and said the government was committed to ending them. Following the CMA investigation, two significant players in the leasehold market have now agreed to change their practices.
National housebuilder, Persimmon Homes, has announced they will extend their Right to Buy scheme to allow leaseholders to buy the freehold of their home at a discount. The cost will be capped at £2,000, with the extended scheme applying to any leases sold on or after 1 January 2000. The scheme will run until 31 December 2026. Persimmon said those who had already purchased their freehold under the scheme could apply for a reimbursement of the amount they had paid over and above £2,000.
Insurance company, Aviva, has become a major investor in leaseholds, which they buy from housebuilders. They have now committed to removing ground rent terms considered unfair by the CMA, and will reimburse leaseholders who have seen their ground rents double. A spokesman for the CMA said:
“If Aviva is now the freeholder for your property and your lease contains a term that doubles the ground rent every 10 or 15 years, that doubling won’t apply, so you’ll just pay the initial ground rent that you signed up to at the beginning and if you’ve already started to pay an increased fee, they’ll refund that.”