Government to ban 'unjust' leaseholds on new-build homes

The government is set to unveil plans to ban leaseholds on new-build houses and to sharply cut ground rents in England, as it fights against what it described as a "national scandal".

Ground rents can double every decade, burdening home owners and making a property very difficult to sell. Flats will still be allowed to be sold as leasehold but ground rents will be limited to a "peppercorn" level, to prevent speculative buyers from entering the market.

"It's clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents," Communities Secretary Sajid Javid said on Tuesday (25 July), as he outlined the proposals, which will be subject to an eight-week consultation period.

"Enough is enough. These practices are unjust, unnecessary and need to stop. Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future."

Leasehold has been common practice for decades in England and Wales and is particularly popular in blocks of flats, with leaseholders owning their homes "on a lease" from a freeholder for a period of time.

Most agreements of this kind span across decades, meaning leaseholders do not encounter any issues, while houses have traditionally been sold as freeholds, which means the buyer owns the property as well as the land it sits on.

However, over the last few years, a new trend has emerged, as an increasing number of new-build homes have been sold as leasehold.

While the leasehold agreements tend to be very long, that means home owners still have to pay ground rents to the freeholders as well as other fees in order to make changes to their homes.

According to figures from the Department for Communities and Local Government (DCLG), 21% of private housing in England is owned by leaseholders and 30% of those properties are houses.

The DCLG warned the terms of some leases "were becoming increasingly onerous" and said the proposals would reduce ground rents so they "relate to real costs incurred".

The government said the practice of selling houses as leasehold was particularly common in the North West of England and described the situation as a "national scandal" and the "PPI of the housebuilding industry".

The Leasehold Knowledge Partnership (LKP), which aims to protect ordinary leaseholders and was extremely critical of the current practices, welcomed the ban.

"Leasehold houses are an absolute racket: a means by which developers have managed to turn ordinary people's homes into long term investment vehicles for shadowy investors, often based offshore," said LKP's Sebastian O'Kelly.

"In short, plc housebuilders have been systematically cheating their own customers."