The balance of power In the housing market falls too heavily in favour of leasehold owners, MPs have said in a new report that calls for change.
MPs on the housing, communities and local government committee said in the report published today that the housing system is “flawed” and open to abuse, with homeowners left at risk of “exploitation” because of onerous ground rents, high service charges and unreasonable costs to extend leases.
The government has two months to respond to the findings.
What Is Leasehold?
There are generally two types of property you can buy – freehold, which means you own it outright, and leasehold – which means you have the right to live in, buy and sell the property but often don’t own the land it’s built on.
Buying a property under leasehold means you pay a rent to the owner of the freehold, such as a developer, to live in the property.
According to the Leasehold Knowledge Partnership, there are more than six million properties in England and Wales under leasehold.
Leasehold arrangements are most common for flats but an increasingly common arrangement for new build houses, too, which has caused controversy as the this can reduce the rights of the owner.
The committee said that during their examination of the market it became clear that many of the leaseholders were not aware of the differences between freehold and leasehold at the point of purchase “in particular the additional costs and obligations that come with a leasehold property”.
How Long Is A Leasehold?
The length of a leasehold is important, because you’re only entitled to ‘own’ the property for the length of the leasehold. This can vary widely – from centuries to just a few years. But the longer the lease, the more secure your situation.
According to the Money Advice Service, if the lease is for less than 70 years, you’re getting into risky territory as you might struggle to get a mortgage.
This is because lenders will normally need it the lease to run for 25-30 years beyond the end of your mortgage. Having a lease that is less than this could also make it an unattractive proposition for potential buyers. A lease of under 80 years, Money Saving Expert says, could be costly to extend – as the owner of the leasehold might charge you high fees on top of an extension price.
What Do You Pay For?
Contracts vary but the owner of the freehold typically has responsibility for helping to maintain and fix common parts of the building – but this means that the person who owns the property has to pay annual and sometimes one-off charges. This includes paying ground rent and maintenance fees.
Often, owners in a block of flats will also pay into a sinking fund – a pot of money to pay for unexpected major works, such as for a new roof.
There may also be restrictions as part of your leasehold agreement. For example, some blocks of flats may ban pets or stop you from making certain changes to your property or from subletting it.
To stop ground rents spiralling, MPs have suggested the government consider introducing legislation that would limit these charges to 0.1% of the present value of a property, up to a maximum of £250 per year.