Is The Leasehold Deal On Your First Home Too Good To Be True?
Many first-time buyers who own the leasehold on their newly built homes have faced spiralling annual costs that have made their properties impossible to sell and almost worthless.
However, the Government may soon be taking action to give leaseholders more protection against sharp practices and exorbitant rents.
What is a leasehold?
Most houses in the UK are sold freehold. That means when you buy the property, you own the piece of land it stands on. However, some properties, mainly flats, have always been sold as leaseholds.
That means the property will eventually revert to the original freehold owner at the end of a lease period, which can last for centuries. Leaseholders also pay annual service charges to the freeholder to cover main tenancy, communal improvements and ground rents.
However, in recent years an increasing number of new build houses have been sold as leasehold. These initially look like a good deal but the Government is concerned that freeholders, who are often developers or investors, are taking advantage of their position by increasing ground rents each year to maximise profits. And while it’s possible for the leaseholder to pay a sum for the freehold and become the outright owner, the cost of these are also becoming prohibitively large.
That is why the Government is now contemplating a ban on leaseholds for new build homes that could come into force this autumn after a consultation period. Ground rents could also be reduced to peppercorn levels or abolished altogether.
Check the terms and conditions to avoid a leasehold trap
Most leaseholds are sold responsibly in the UK and it’s still the most convenient way to purchase a flat in a shared block. However, the devil can be in the detail, so if you’re looking at buying the leasehold of a property, make sure you check the length of lease and any other conditions attached.
Also make sure you understand all the charges and repairs you’re liable for and how the ground rent is set. This is often done using an annual escalator formula. It’s not unusual for ground rent to double over a decade, so what seems a deal now may not be so at the end of your 30-year mortgage period.
Buying the freehold to your property?
If you’ve already bought a leasehold home, under the Leasehold Reform Act, 1967 you may qualify for the right to buy the leasehold. This will add value to the property and make your life simpler. You should consult with a chartered surveyor for a valuation.
You may also be entitled to compensation. Although the practice is legal, many of the largest housing developers have put aside millions of pounds for homeowners who have been hit by increasing ground rents to avoid the poor publicity.
At Simpsons of Abingdon we make sure our purchasers have all the facts and know what they’re getting for their money. If you’d like more information about leasehold properties, feel free to contact our Apartment Specialist Matt Parker on 01235 520079.