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Leaseholds could be banned for new houses

Leaseholds on new-build houses could be banned under Government proposals aimed at preventing homeowners being left with unfair fees.

More than four million people live in leasehold properties in England, giving them the legal right to occupy and use the property for a set period - usually 99 to 999 years.

But the associated fees - including service charges and ground rents - can increase by huge amounts each year, leaving some leasehold properties unsellable.

Ground rent can increase at such a rate that a homeowner could end up having to find many thousands of pounds a year, on top of service charges and their own mortgage payments.

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Under plans put forward by Communities Secretary Sajid Javid leaseholds on new builds would be illegal, while ground rents would be massively reduced.

Legal loopholes would be closed to protect leaseholders exposed to possession orders and rules on Help to Buy equity loans would change so they could only be used for "new build houses on acceptable terms".

Leaseholders pay fees to the freeholder, who owns the ground on which the home is built.

The system has existed for a long time in England and Wales and is particularly common for blocks of flats.

But the trend for new homes being sold as leaseholds has grown in recent years, particularly in the North West of England, prompting a backlash against housebuilders.

Taylor Wimpey (LSE: TW.L - news) was among firms to face complaints. It announced in April it had set aside £130m to cover costs associated with efforts to resolve what it called "unintended financial consequences" of lease agreements.

A company spokesman said in reaction to the crackdown:"We announced last year, following a review, that all future sales of Taylor Wimpey houses on new developments commencing from 1 January 2017 will be on a freehold basis."

"We have also introduced a scheme to help Taylor Wimpey customers who bought homes from us with a ten year doubling ground rent clause.

"We are working hard with the freeholders to convert our customers' doubling leases at our expense to ones which resolve concerns around how easy it is to sell or get a mortgage on these properties."

In launching the proposed crackdown, Mr Javid told Sky News: "What we've seen, in the last few years especially, is a huge increase in the number of houses, not flats but houses, that are being sold on leasehold terms for no good reason.

"And worse still, once they've been sold, those people that have bought those houses are then subject to ground rents that are ever escalating.

"These are just being used as another income stream by developers, not in the interest of consumers."

Mr Javid suggested there should only be "very exceptional circumstances" where new-build houses could still be sold on a leasehold basis, such as on land held by the National Trust.

John Healey, Labour's shadow housing secretary, welcomed the plan, but said more action was needed.

"Labour has said for the last year that using leasehold to sell homes is unfair and unjustifiable. And at the election we said we'd end the routine use of leasehold ownership for all new homes and cap charges on 'ground rents' to stop the scam," he said.

"The Government's pledge is welcome but legislation is needed and this got no mention in last month's Queen's Speech.

"Home-buyers need legislation to ensure the end of this leasehold abuse, cap rip-off rises in ground rent and deal with existing contracts that contain unfair buy-out clauses."

Sir Peter Bottomley, co-chair of the all-party parliamentary group on leasehold reform, welcomed the proposals but said action was also needed to help those with existing leases.