Developers are to be banned from selling houses with ‘feudal’ leasehold contracts, the Government has announced.
In a groundbreaking reform, Communities Secretary Sajid Javid said that ‘rip off’ leasehold clauses would not be allowed on almost all new homes and that ground rents on all new leases would be set at zero.
Javid vowed the changes would end “feudal practices” that have led millions of homebuyers to be subject to extra charges.
The Government will also make it cheaper and easier for existing leaseholders to buy-out their freehold, and provide more redress for those consumers who face hefty prices.
Some four million flats and houses in England are currently governed by leasehold contracts that have been dubbed “legalised extortion” because of the way they allow ground rents to be hiked.
Leasehold generally applies to flats with shared spaces, making multiple ownership more straightforward, but developers have been increasingly selling houses on these terms – adding further costs to over-stretched house buyers.
Labour welcomed the change, claiming it had forced a U-turn after the policy was excluded from the Tory manifesto this year.
But Government insiders insisted they had been working for months on reforms to stop leaseholders from being ripped off by unscrupulous developers or managing agents.
In the worst cases of abuse of the current system, some homeowners see their freehold sold on to finance companies that then jack up their ground rent or offer them the freehold at ruinous prices.
Javid said: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.
“It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices. That’s why the measures this Government is now putting in place will help create a system that actually works for consumers.”
Shadow Housing Secretary John Healey said current leaseholders needed urgent help too.
“The Government is now backing Labour’s proposals to end the routine building of new leasehold houses and crack down on escalating ground rents.
“However, Ministers must do more to help home-owners in existing leasehold houses and flats who have insufficient protection against exploitative freeholders and their agents.”
The changes follow a consultation that found the overwhelming majority of those affected favour change.
Javid will be writing to all developers to “strongly discourage” the use of Help to Buy Equity loans for the purchase of leasehold houses in advance of new legislation and to ask those who have customers with onerous ground rent terms to provide necessary redress.