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The abolition of leasehold new build houses?

Posted on 4 August 2017 by Chris Palucsis

The abolition of leasehold new build houses?

You may recall the commitment made in the Housing White Paper and further in the Queen’s Speech to “consult and look to take action to promote transparency and fairness for leaseholders. We will look at the sale of leasehold houses and onerous ground rents, working with property developers, the Competition and Markets Authority and others as outlined in the Housing White Paper.”

Following on from this, on 25 July 2017, the government published its consultation ‘Tackling unfair practices in the leasehold market’ which, amongst other things, looks at a proposal to abolish the use of leasehold title for new build houses.

The need for such a reform stems from a number of situations where leaseholders of houses have experienced or are due to experience hyper-escalations in the ground rents of their houses. Such ground rents provide a steady and consistent income for the developers who essentially retain the freehold title as the ‘landlord’.

If this weren’t bad enough, it so happens that leasehold houses fall outside of the Right of First Refusal, which means that whole estates of leasehold houses have ended up being sold to third party landlords without first giving the residents the option to purchase their individual freehold title.

It has been argued by developers and landowners that by abolishing this option for selling houses would naturally result in increased house prices, to compensate for the loss of the freehold title and so the loss of the ground rent income. Furthermore, it has been argued that this will reduce the choices available to buyers of new build homes, as leasehold houses tend to be slightly cheaper when compared to freehold houses. However, the government is not convinced of this and this is why the consultation also asks its respondents to give opinion on what restrictions should apply on the sale of leasehold houses, the starting point being that houses should not be sold with leasehold tenure at all unless justified.

As well as this, the government also seeks views on other areas, including the possible changes to the Help to Buy scheme in relation to leasehold houses.

A copy of the consultation paper can be found here - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/632108/Tackling_unfair_practices_in_the_leasehold_market.pdf

The consultation closes on 19 September 2017 and responses can be submitted through an online survey - https://www.surveymonkey.co.uk/r/leaseholdhouse

Posted in: Buying & Selling Your Home