Christine and Daniel Harrison have to save hundreds of pounds every year just for the privilege of living in their own home. And this ‘fee’ has nothing to do with their mortgage.
When the couple bought their new-build five-bedroom home near Ormskirk, West Lancashire, for £600,000 six years ago, they had no idea the property was on a leasehold until they were about to buy it and felt it was too late was to buy it. back outside.
Now they face the choice of paying £350 a year in ‘estate rent’ to Aviva-owned Mainstay Residential, or spending £11,500 to buy the property.
This means that they have the right to live in their home, but the land on which it is built is owned by an owner or landlord.
“The canon is money for old rope,” says Christine. ‘We get nothing in return.’
Nightmare: Jo Darbyshire faced a £40,000 bill for her property after it was sold to an investment company
The couple, who live in the house built by Morris Homes with their 17-year-old son and 15-year-old daughter, also separately pay maintenance charges of £80 a month.
Now Christine and Daniel – who are among the ten million people in England and Wales who are leaseholders – face a different concern.
Under reforms expected to be announced next week, new homes will have to be sold on freehold land, meaning new owners will not find themselves in the situation of having to pay ground rent to someone else.
Leveling Secretary Michael Gove said the bill will help restore “real ownership” to buyers and phase out the “feudal” leasehold system.
But what about existing leaseholders? Will they be left with unwanted properties when buyers look for homes without leasehold restrictions and costs? Or is there also support for current leaseholders? Geldpost investigates.
What about existing leaseholders?
The ban on leasehold does not apply to existing homes. However, experts predict that the announcements will include some measures to ease the plight of existing tenants.
Ministers plan to limit all ground rents paid to the owner of new leasehold properties to a minimum rate (or ‘peppercorns’).
The government has already passed legislation to put an upper limit on ground rents for new properties.
It is expected to be one of the first laws introduced before Christmas. But some experts predict the rules will also protect existing leaseholders from excessive costs.
These burdens are known to rise to unsustainable levels. In some cases they have risen in line with the Retail Price Index (RPI) or doubled every decade.
Reforms: Justice Secretary Michael Gove
As a result, many have struggled to pay the bills, take out a new mortgage or sell their property.
Sebastian O’Kelly, chief executive of the charity Leasehold Knowledge Partnership, says it is unclear how far the government will go to protect existing leaseholders, but he expects the incremental increases could be limited.
He says: ‘The government could address the conditions under which ground rents rise, for example by saying they cannot rise more than a certain amount.’
But even if costs are capped, it is unlikely there will be any compensation for homeowners who have already had to pay large sums to buy their properties to escape skyrocketing land prices.
Jo Darbyshire is among those who think this is unfair. She had to pay a five-figure sum to buy the freehold of her home – in a nightmarish negotiation that lasted a decade.
Jo and her husband Mark, 54, bought a newly built five-bedroom detached house near Bolton in 2010 for £395,000.
They had purchased the house with a leasehold of 250 years. At the time they could not afford to buy the property, but they said they could buy it at a later date for around £5,000.
But a few years later the leasehold was sold to an investment company, which increased the cost of purchasing the property to £40,000.
The couple was told the ground rent could double every decade unless they bought the property.
This could increase to a maximum of £9,440 per year after 50 years. By 2020 this had already risen to over £400 per year. Pension administrator Jo (53) believes that the ban on leasehold properties should be extended to all homeowners.
“It is welcome news that all future leasehold rights for homes like ours will be banned, but we certainly all deserve to be treated fairly,” says Jo, co-founder of the National Leasehold Campaign campaign group.
It will become easier to increase rents
Landlords trapped in tenancy rights will be freed from some of the restrictions they impose.
The standard lease extension of the contract will also be changed from 90 years to 990 years under the new proposals.
Under current rules, homeowners who have owned their home for at least two years have the legal right to extend their lease by 90 years for an apartment or 50 years for a house.
However, this will be extended to 990 years and homeowners will no longer have to have lived in the property for two years before they can negotiate an extension.
In general, the less time left on the lease, the less valuable the property becomes. This means that such a major expansion could add thousands to a property’s value and free up homeowners who were previously unable to sell their property.
Protection: Ministers plan to limit all ground rents paid to the owner of new leasehold properties to a minimum – or ‘peppercorn’ – rate
Leaseholders will also benefit from the increase in the value of their home if they choose to extend their lease under the proposals.
The value of a home with a short rental contract increases when the rental contract is extended. The paper profit that the leaseholder makes by renewing is called ‘marriage value’. However, if your lease is less than 80 years, you must share the marital value with your own owner.
As part of Gove’s sweeping reforms, this marriage value will be abolished. This means homeowners can keep the full amount their property increases when they pay to renew.
It may take some time before you see the benefits
The improvements for leaseholders will not be immediate and may take some time to impact the value of their properties.
For now, some leasehold property owners may find it harder to sell as potential buyers choose to step away and opt for the convenience of home ownership instead.
Joanne Tracey put her four-bedroom detached house in Erdington, West Midlands, on the market five months ago for £325,000 – £25,000 less than its value.
She expected a quick sale thanks to the reasonable price and because similar properties in the area typically sell within six weeks.
But Joanne thinks buyers are being put off because her house is on a leasehold property. “The risk of taking on an expensive leasehold has driven potential buyers away,” says the children’s home services manager and mother of four.
Future owners can apply to purchase the property. But they would have to apply to find out how much it would cost as the cost is not fixed. And even applying to find out would cost £200 – another deterrent for buyers.
Joanne believes that the new rules prohibiting leasehold should apply to both existing and new homes. “All we ask is that necessary changes to the leasehold rules are implemented across the board,” she says.
What help is there for apartment owners?
The proposals to ban the sale of leasehold properties will not extend to new apartments. According to estimates from the Housing Department, seven in ten leasehold properties are apartments.
However, Mr O’Kelly says the new reforms may not immediately apply to leaseholders, but the impact will eventually trickle down and benefit everyone.
He predicts that freeholders will no longer be able to charge excessive costs to leaseholders, because the ground rent component will be capped under the new changes.
“The only legitimate income homeowners earn from a condominium building is now capped for new condominiums,” he says.
‘This exposes all the underhanded charges they were charging, such as fussing with insurance costs or appointing their family and friends to replace a light bulb at £5,000 a time. The game is over. House builders will no longer want to give their customers an advantage in this way.’
Housing activist Harry Scoffin says the ban on leasing should include apartments. He said: ‘The new reforms have not scratched the surface for flat tenants and will not go far enough to rectify the structural unfairness of the system.
‘The system means that households get none of the control or autonomy that should come from home ownership.’
Additional reporting:
LUCY EVANS And TOBY WALNE
j.beard@dailymail.co.uk
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