Thousands stuck on properties because of buying as leasehold

Michael Lloyd

September 7, 2018

Thousands of homeowners are stuck in properties they cannot afford to continue living in and cannot sell because they bought them as leasehold, NAEA Propertymark has found.

In most cases, buyers were unaware of what being a leaseholder would mean, and some didn’t realise they were only buying the lease until it was too late.

Some 78% of leasehold house owners bought their home directly from a developer, rather than going through an estate agent, and when it came to completing the purchase 65% used the solicitor their house builder recommended.

Mark Hayward, chief executive, NAEA Propertymark said: “Buying a home is a big undertaking, and one of the biggest financial and emotional investments we make.

“Those who buy a new build are often under the impression that buying something brand new means it will be perfect, but unfortunately that isn’t the case and most buyers have no idea about the trappings of a leasehold contract until it’s too late.

“In June, the Secretary of State for Housing, James Brokenshire, announced that housing developers would no longer be able to use new government funding schemes for unjustified new leasehold house sales.

“This is good news for future homeowners, particularly first-time buyers who accounted for 50% of leasehold house sales over the last 10 years; they typically have less bargaining power in the market so often opt for new build sales directly from developers. However, the challenge now is looking at what can be done to help those stuck in leases.”

For 15% of those, they weren’t told they weren’t buying the freehold by a professional – they had to find it in the contract themselves.

Further, nearly half (45%) didn’t know they were only buying the lease until it was too late, and 57% didn’t understand what being a ‘leaseholder’ meant until they had already purchased the property.

Almost half (48%) were unaware of the escalating ground rent until it was too late, and as a result the vast majority (94%) regret buying a leasehold, and two thirds of these homeowners (62%) feel like they were mis-sold.

In most leasehold agreements, the freehold stipulates that homeowners must seek permission to make cosmetic alterations, with one in 10 (10%) homeowners having faced a charge for doing so.

On average, freeholders charged homeowners £1,422 to install double glazing, £887 to change the kitchen units, and £689 to replace the flooring. Some even faced bills for changing their blinds (£527) and installing a new front door (£411).

Of those currently trying to sell their home, a third (31%) are struggling to attract a buyer because they don’t own the freehold, and a quarter (25%) have had interest from house hunters, but when they found out the property was being sold as leasehold, they were deterred.

As a result of this, one in five (18%) have actively tried to buy the freehold to make their property more attractive to prospective buyers, while 41% are thinking about doing it.

The vast majority (93%) said they definitely wouldn’t buy another leasehold property, because of their experiences.

In a leasehold flat or apartment, the service charge may cover maintenance of communal hallways, cleaning, and fixing things like guttering, roofs or building management.

However, in leasehold houses, there are unlikely to be communal areas inside the property and instead the service charge will usually cover the maintenance of outdoor communal areas.

Hayward added: “If you buy a new build house, you’d usually deal directly with the developer’s sales team rather than an estate agent.

“But sales assistants aren’t bound by the Estate Agents Act 1979, leaving buyers vulnerable and without protection, which explains why so many feel like they were mis-sold.

“Almost all of the homeowners we surveyed (93%) said they wouldn’t advise their friends or family to buy a leasehold home, which is a damning indictment on the industry

“It’s time we listened to this and sought a robust solution for all those affected, unable to sell their homes, and serving a leasehold life sentence.”

Sign up to our daily email