Residential leaseholds costing owners £319 per year

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Leasehold house owners are paying £319 in ground rent costs every year, totalling £447 million, and one in ten say the cost affects their quality of life, new research has found.

Some 36% of leasehold house owners say they wouldn’t be able to afford to live in their home if their ground rent was to increase and 6% already feel like they can’t afford it because of the cost, according to the survey from the National Association of Estate Agents (NAEA).

It also found that 10% have seen their ground rent rise since moving in, typically after just seven years. Of those, 19% didn’t understand the detail in their contract about how much it would go up by and 46% said if they had known it was going to increase, they might not have purchased the property.

It comes at a time when questions are being asked in the industry about the growth of leaseholds in the residential market with developers selling them on to management companies and some owners facing escalating ground rent, extortionate fees for making cosmetic alterations like changing their front door, and unable to sell their homes.

Indeed, the Competition and Markets Authority (CMA) has formally launched an investigation to find out whether people who have bought a leasehold property are given the information they need to fully understand the obligations they are taking on, for example the requirement to pay ground rent over a certain period of time, or whether they have an accurate understanding of their ability to buy their freehold.

And it will examine whether people are having to pay excessive fees due to unfair contract terms. This will include administration, service, and ‘permission’ charges where home owners must pay freeholders and managing agents before making home improvements, and ground rents, which in some cases can double every 10 years.

‘Buying a home is one of the biggest financial and emotional investments we make in our lifetime, and once we’ve completed and moved in, we should be able to enjoy the property. But unfortunately for those buying leasehold houses, the financial burdens continue with ground rent payments to the freehold every year,’ said Mark Hayward, NAEA chief executive.

‘Even though many leasehold contracts include a 10 year ground rent freeze, most developers sell the freehold onto a third party within a few years of completion and those terms go out the window, meaning homeowners are faced with unexpected and escalating costs,’ he explained.

‘It’s positive to see action being taken, with the recent announcement that the CMA will be investigating the mis-selling of leasehold properties, as for too long, house builders and developers have not been transparent enough about what it actually means to buy a leasehold property,’ he pointed out, but he added that for thousands of home owners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders.

Wanda Goldwag, interim chair of the Leasehold Advisory Service, explained that large escalations in ground rent only serve the commercial interests of developers and investors, and the Government intends on limiting ground rent on new properties in the future. ‘In the meantime, some developers and investors have recognised the unfairness of ground rent increases in leases and established schemes to assist leaseholders,’ she added.

She also said that for anyone unsure about their ground rent and whether it increases, can get in touch with LEASE. ‘We can review the lease and establish if there is an escalating ground rent and whether your freeholder is a signatory to the pledge unveiled by the Secretary of State for Housing James Brokenshire on 28th March, to assist existing leaseholders trapped in onerous deals,’ she pointed out.

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Written by: Houseladder