Yahoo Finance New era of housebuilding needs new property laws
Leasehold houses aren’t the only problem area – apartment buyers need help too
Labour has committed to banning new houses being sold as leasehold, in a boost for Guardian Money’s campaign against escalating ground rents that have made some homes virtually unsaleable.
The promise, by Labour’s shadow secretary of state for housing John Healey, comes just days after the government, in answer to a question in the House of Commons, pledged to “stamp out” the abuses highlighted by us.
In recent weeks we have revealed how many buyers of new-build homes, particularly in the north-west of England, have been sold their properties on a leasehold basis rather than the traditional freehold, only to find themselves locked into spiralling ground rent demands. In some cases the rents double every 10 years, leaving households with the prospect of bills eventually reaching more than £10,000 a year. When they come to sell, they then find that mortgage lenders will no longer offer loans against their home, making it virtually worthless.
Answering a question raised by the MP Peter Bottomley, communities secretary Sajid Javid told the Commons: “We must make sure the kind of abuses he mentioned are stamped out and we will continue to do everything [we can]. We do work with a number of stakeholders and we can certainly see how we can do more.”
But Labour is promising to go further. It says it will cap ground rent charges and set out a plan to end the routine use of leasehold ownership in new housing developments. In the longer term it says ground rents could be abolished altogether.
Healey said: “Homeowners who own their home on a leasehold basis are currently unprotected from huge rises in rip-off ground rents from developers or management companies. At its worst this is little more than legalised extortion, and too many leaseholders are having to pay hefty bills as a result. Under a Labour government this sharp practice would end.”
Ground rents are a medieval relic, sadly still going in England but abolished (like leasehold itself) in much of the former empire. The Irish in particular harboured a hatred of them, seeing them as a form of serfdom imposed by absentee British aristocrats. In 1978 the Republic banned the creation of any new ground rents, while in 2004 Scotland brought in the Abolition of Feudal Tenure Act. Only in this country do new ground rents persist. We are the last colony not to rebel against our feudal landowners.
But we should not limit reforms to leasehold houses alone. The government has promised a new era of housebuilding, and in the big cities the majority of new homes will be apartments, not houses. These are routinely sold as leasehold when they should be commonhold.
Under commonhold, the individual flat buyer owns everything. There is no landlord, freeholder or lease to worry about; ownership means ownership. There is still a need, of course, to repair and maintain the property, but the flat owners choose their own property management company, eliminating many of the rip-offs that are sadly all too common.
Thing is, England already has commonhold, as it was introduced in 2002 – by Labour. But it was not obligatory, and developers just ignored it as they could make easy money from continuing with leases. It really should not be that challenging to amend the 2002 act to make all new apartments commonhold. The thornier issue is how to terminate existing leaseholds. The freeholders will seek compensation for the loss of their future income stream, but caps need to be imposed to prevent exploitation.
Meanwhile, we will continue our investigation. Which are the companies and individuals raking in the most from escalating ground rents? We would be happy to hear readers’ experiences.
