HOUSE buyers who purchase leasehold properties are being “mislead” and “unfairly treated” by housing developers, a government report has revealed.
Thousands of homes have been sold as leaseholds to unsuspecting buyers who are then struggling to meet the fees, charges and have difficulty selling
After homeowners struggled to shift their properties on the market, the Housing, Communities and Local Government Committee decided to launch a report last year.
In May, MPs revealed they found people in England and Wales were being ripped-off by developers, freeholders and management agents, and called for an investigation.
Days later, industry watchdog the Competition and Markets Authority announced it had launched an inquiry.
Today, the CMA echoed the MPs thoughts and found people are having to pay escalating ground rents, which is often built into their contracts and makes it difficult to sell homes.
What is a leasehold, what if I want to buy one and what should I look out for?
ANDREW Johnson, money expert at the Money Advice Service has some tips on what to consider before buying a leasehold.
- A leasehold is where you own the property for a fixed period of time but you don't own the building or the ground it sits on. Because of this, the leaseholder typically pays an annual ground rent to the freeholder, who owns the building.
- If you want to buy a leasehold, check how many years are left on the lease. You may struggle to get a mortgage on a leasehold property which has less than 80 years to run. A short lease will be a lot more expensive to extend.
- Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your property's saleability in the future.
- Ask how much the ground rent is. This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
- Ask about service charges and other related costs. This generally covers repairs or maintenance to the property including building insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
If you need further advice about a lease you can contact the Lease Advice organisation. This is a completely free to use Government-funded and backed service that provides independent advice to leaseholders. Use its online form to request a 15-minute phone chat.
It added it found buyers are “misled” about the cost of converting their leaseholds to freehold ownership and are not told about what the differences are between the two.
The report also said people are being charged “excessive and disproportionate fees” for things like the routine maintenance of a shared space of a building.
Andrea Coscelli, the CMA’s Chief Executive, said the CMA was now launching legal action against the companies who may have broken consumer protection law.
He added: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.
“Buying a home is one of the most important and expensive investments you can make, and once you’re living there you want to feel secure and happy. But for thousands of leasehold homeowners, this is not the case.”
James Tarr, head of leasehold management at Andrews Property Group, urged for regulation in the leasehold sector.
He added: “You need to have a situation where conveyancing solicitors and developers alike are obliged to spell out the full meaning of leaseholds, in plain English, before any transaction takes place.
“Everyone buying a leasehold flat needs to go in eyes wide open not, as currently happens all too often, eyes wide shut.”
The news comes as Nationwide revealed that the average value of properties has increased by 2.3 per cent since July 2018.
From next month, renters will also be able to sue landlords over mould and damp.
And a warning has been given to people who used the Help to Buy scheme after the Financial Conduct Authority said people are finding themselves in negative equity.
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