The issues with leasehold new build properties

Slinkie

Slinkie

Slinkie

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Hi all,

I am currently looking for a new house and due to a number of new developments local to me I have been looking at these as options. There has been a lot of items in the news about extortionate lease uplifts after the leaseholds have been sold to third parties.

I have googled the issue and have seen a lot of news relating to this practice being banned (all articles are dated end of July). I can't see any news since then with more information.

Does anyone have any experience of this or know what the deal is with the future of leases on new builds?

One answer is to buy the leasehold upfront which I am considering anyway.
 
Slinkie said:
One answer is to buy the leasehold upfront which I am considering anyway.
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not sure if that is the full answer - some of these dodgy developers might sell you the leasehold but then still end up with the council not owning the roads or other parts of the development etc.. and you still having to pay some pointless annual charge to some management company/investor etc..

it is mostly a big scam to skim extra profit, I think the way they're often managed in flats is dodgy too but sadly the law in England and Wales is a bit of a farce in this area, there is absolutely no reason for them to sell houses as leasehold in the vast majority of cases.
 
I know of a "management fee" on the development for maintaining the roads/ parks/ grass verges etc but didn't realise that would be an issue too.
 
well it isn't an issue if you're happy to pay for it

it isn't really needed though, the vast majority of home owners in the UK have no need to pay a management fee for maintaining grass verges and parkland as their local council looks after those and they already pay council tax

is the development gated and do you and other residents have exclusive use of the green areas etc..?
 
Hopefully it will shortly be outlawed as it is a disgusting system but for now you could be stuck. Personally I wouldn't buy a new build unless I could by the leashold and all roads on the estate were being adopted by the local council.
 
Slinkie said:
Hi all,

I am currently looking for a new house and due to a number of new developments local to me I have been looking at these as options. There has been a lot of items in the news about extortionate lease uplifts after the leaseholds have been sold to third parties.

I have googled the issue and have seen a lot of news relating to this practice being banned (all articles are dated end of July). I can't see any news since then with more information.

Does anyone have any experience of this or know what the deal is with the future of leases on new builds?

One answer is to buy the leasehold upfront which I am considering anyway.
Click to expand...

Hold off for now until the investigation is over, there's a 99% chance they're going to ban leaseholds on new build houses, so it won't be an issue in the future.

Just the thousands including myself that already own them that will continue to suffer now, there's nothing the government can do to give the freehold to the people that should rightfully own them.
 
The only reason it has suddenly become such an issue this year is because of the leasehold properties with exponential ground rent increases that are coming to light now people who bought them in the last 5-10 years are coming to sell. It seems there has been some dodgy conveyancers tied in with the developers who haven't been pointing out to buyers just how bad it could get and how unappealing it might be to future buyers.

The main one that has been in the news is Taylor Wimpey whose leases are typically 999 years with a starting ground rent of £200 p/a, doubling every 10 years. Now some of these are capped and will no longer increase after 50 years (at £6400 a year, so still extortionate) but many have no cap which means in 100 years the annual ground rent would be more than today's value of the property :p So after 30 years you're looking at it costing you an extra £130 p/month for no benefit whatsoever.

Now this wouldn't be such a problem if Taylor Wimpey retained the freehold of the development as you could buy the freehold from them for a sum and go on with your lives without the worry of this ground rent payment. But a lot of them have been solved to investment companies who in many cases are pretty much un-contactable so your only option is through the courts...

Most new builds still have ground rent that increases in line with inflation or similar which, albeit more expensive than a freehold property, are acceptable. But as above you have that plus management fees for upkeep of areas that really should be council's responsibility and it all gets unnecessarily more expensive.
 
Slinkie said:
Hi all,

I am currently looking for a new house and due to a number of new developments local to me I have been looking at these as options. There has been a lot of items in the news about extortionate lease uplifts after the leaseholds have been sold to third parties.

I have googled the issue and have seen a lot of news relating to this practice being banned (all articles are dated end of July). I can't see any news since then with more information.

Does anyone have any experience of this or know what the deal is with the future of leases on new builds?
Click to expand...

Owning a leasehold flat I can tell you this: don't go leasehold. Avoid it like the plague. Its a licence to print money you don't own the land the property sits on the leaseholder does and can charge whatever they like in ground rent (thats right, you have to pay rent on the land your property is sitting on) and they can charge you maintenance and anything else since they own the land - and they can basically charge whatever the heck they like for doing sod all. Case in point they doubled the ground rent this year - just because they can. When the lease is up for renewal you have to pay tens of thousands just to renew the lease and its nigh on impossible to get a mortgage if the lease is due for renewal in a few years. I just wish they'd ban it for flats too because its a nightmare.
 
They can't double the ground rent "just because they can". It has to be in line with the rent review provisions in the lease, which you should have been made aware of when you bought.

The whole "you don't own the land" argument is a bit of a fallacy as that isn't the real problem. There town where I work has mostly leasehold residential properties however the leases are for 999 years with a ground rent of £10 that doesn't increase. There are also no management fees because everything is adopted by the council where it should be. This is an instance where I would happily buy leasehold.

The problem is developers now being so greedy that they are making new leasehold properties at such a ridiculous cost.

Technically flats have to be leasehold so you don't have a choice there but again it's not the fact the are leasehold that is the problem. If anything you wouldn't want a freehold flat (some old ones do still exist) because of the way the law works.
 
A friend of mine was about to purchase a newish build with a 100 year lease. In the end his mortgage company (nationwide) pulled out last minute because there was no way of telling if the ground rent / service charges would shoot up, they can just increase for no reason if the lease company decide. Nationwide were not happy about this so literally pulled the offer just before contract exchange.

He seeked legal advise and the advise was take Nationwide's decision as a warning and do not purchase this property.

Mortgage companies assess your affordability based on earnings and committed spending, they stress test you if interest rates were to increase to a certain level. With no way of telling what the ground rent could end up being, I think that is why they got cold feet.
 
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Jamesyboyjim said:
A friend of mine was about to purchase a newish build with a 100 year lease. In the end his mortgage company (nationwide) pulled out last minute because there was no way of telling if the ground rent / service charges would shoot up, they can just increase for no reason if the lease company decide. Nationwide were not happy about this so literally pulled the offer just before contract exchange.

He seeked legal advise and the advise was take Nationwide's decision as a warning and do not purchase this property.
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It's unlikely to be because there was "no way of telling" if ground rent/service charge would go up, it would be pretty unusual for a recent new build lease not to have rent review provisions. However Nationwide have just changed their requirements so they must be advised if there is doubling rent etc...
 
bobbarley said:
The terms of the lease are very clearly defined in, funnily enough, the lease.
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The problem is people don't bother reading that stuff. And when they do and don't understand what it means they just assume it's all OK without finding out the implications before it's too late.

Then a year or 2 later they discover the costs will be going up by silly levels every 10 years meaning their home is virtually unsellable to anyone that is clued up.
 
You're not wrong. I read mine cover to cover and it goes up every 10 years by RPI, which is more or less as good as it's going to get. Hopefully I'll be able to get the freehold at a good price via arbitration with a solicitor, whilst suing my old solicitor.
 
Another one of the most important questions to ask the sales advisor at the outset is whether the roads within the development will be adopted by the local authority under a Section 38 Agreement on completion of the development.

If the answer is no, then buyers should walk away.

Private roads and ongoing management charges are something that new home buyers can well do without and should avoid altogether.

You may own your house freehold, or on a good quality reasonable cost lease, but if the roads and pathways and verges are all private and do not get adopted by the local authorities after the development is finished, you could end up with huge ongoing costs for paying maintenance fees for the up keep of those facilities.

If the developers start out with the intention of never getting a Section 38 agreement, and start out with the onsite roads pathways etc. remaining private, then this often results in narrower roads, narrower pavements, smaller parking spaces and reduced, low specification street lighting, making it possible to cram in even more new homes. Private roads can also be constructed to a lower specification which could substantially reduce construction costs. It will matter nothing if the road collapses after a few years as buyers will be paying for the repairs!
 
Skillmister said:
That's if they even finish them in the first place :p
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Prime example, a private development near my brothers, where the developers never applied for Section 38, and never had any intention of doing so either, finished all the houses and walked away leaving the roads with no top layer.

Residents then looked at terms and contracts and found in the small print the developers were never going to finish the roads, nor were they liable for them as "finishing to top surface" was never in the original site plans.

So the roads, pathways and verges, (8 years later) still have not been finished as developers refuse to pay, residents refuse to pay, and so does the council.

Granted very rare occurrence, but possible.
 
It also seems like these days councils are happy to cream off the extra council tax from new developments but they don't want to maintain the roads and grass verges etc.
 
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