Leasehold new build houses are in the spotlight after buyers revealed they thought they’d purchased freehold new builds. Here’s what you need to know.
Buying a new build property is a popular option for those looking for a home, especially among those taking their first step on to the property ladder.
A new build home is less likely to require the same level of maintenance that you’d face with an older property.
It’s also likely to be more energy-efficient – meaning cheaper bills – plus you often get all the fixtures and fittings included.
In addition, you can buy a new build home with a deposit of just 5% using the Government’s Help to Buy equity loan scheme.
However, issues can arise if you have bought a new build property on a leasehold basis without realising it, as unscrupulous leasehold practices mean you could now face punitive fees and charges.
These are seen as particularly unfair on buyers of new build properties.
What is a leasehold property?
A property that gives to the legal right to live there for a set period. While this system usually applies to flats, in recent years, some developers and housebuilders have been selling houses on leasehold terms too.
Homeowners often don’t realise the implications of buying leasehold, and as a result, many have been left facing escalating ground rents and eye-watering charges to make even minor alterations to their properties.
If your ground rent doubles every five or 10 years, say, you could get landed with bills running into thousands and be unable to do much about it.
This has meant some owners of new build properties have found themselves trapped in their homes – unable to sell.
What are your rights when buying a new build?
Your developer should be upfront about the terms of the agreement and it’s your solicitor’s job to find out the precise details.
If you feel the terms of the agreement were not sufficiently explained to you, you may have a case for suing your conveyancer, according to the Homeowners Alliance.
This may sound a bit extreme, but if you’ve unknowingly been led into a nightmare agreement by a property professional, you should have grounds to take action.
What should you do if you’ve bought a new build leasehold?
- Check all the documents your conveyancer or solicitor provided in their report on title to see if there is any mention of the ground rent. If it is not mentioned – and there are no details about the implications – you may have a case.
- If your conveyancer or solicitor did give you details of the terms of the deal, you may want to take a very different course of action – and consider buying the freehold of your home. This can be a costly and complicated process and you should seek advice.
- Don’t agree to an informal agreement suggested by your freeholder. This may well mean you end up with a worse deal and without any legal protection.
- A further alternative involves you extending the lease on your property. If you carry out a formal lease extension, this should mean rents are reduced significantly. Note, though, that you can only extend the lease if you have owned the property for at least two years. This can also be a complicated and costly process.
- Be wary about reaching an informal agreement with your freeholder to extend the lease, as you may still have to pay a ground rent.
*Tips provided by Homeowners Alliance.
For more information read: 11 things to watch out for when buying a leasehold property
What do campaigners say?
With many people trapped in the leasehold sector, campaigners have long been calling for an overhaul of this system.
For example, Homeowners Alliance produced a report in 2017 – Homes Held Hostage – which found more than 1.5million British owner-occupiers do not truly own their own home in the eyes of the law.
The report also identified widespread confusion and lack of understanding among consumers over the leasehold system.
Elsewhere, NAEA Propertymark has warned that thousands of homeowners face escalating ground rents and charges for making alterations to their properties. As a result, many are trapped in homes they cannot afford to continue living in.
What is the Government doing?
In October 2018, the Government announced proposals which mean the majority of new build houses will be sold as freehold. The move is aimed at cracking down on unfair leasehold practices. Read more at: Government plans to make ‘vast majority’ of new build houses freehold.
This was the renewal of a pledge made in 2017 to prevent new houses being sold as leaseholds. Read more at: Government to ban leaseholds on new build homes in England.
Speaking in October 2018, communities secretary, James Brokenshire, said the consultation aimed to bring an end to the ‘unjustified selling of new houses as leasehold.’
The Government also plans to cap ground rent on new leases at £10. This is a significantly smaller sum than the average, which stands at £300.
Where can you turn for help with new build leasehold?
Arm yourself with as much information and advice as possible. Try organisations such as Homeowners Alliance and make use of guides, such as this one here, produced by the Homeowners Alliance and Conveyancing Association, on the fees and charges that may be payable on a leasehold property.
What to look out for if you want to buy a new build home but not on a leasehold basis
While the Government is taking steps to improve the current system for new build homes, you still need to be on guard when purchasing a new property.
- Gain as much information as you can from the developer and scour the small print of the agreement for any unfair terms.
- Most developers will recommend using their solicitor, but it’s advisable to find your own conveyancing solicitor. They will be acting in your favour, conduct the necessary checks, and ensure things aren’t missed.
- When choosing a solicitor, search around to find someone with experience in new build sales.
- As well as seeking legal advice, you should do everything you can to ensure you go into the purchase of a new build property with your eyes wide open.