Up and down the country, buyers of new-build, leasehold homes are finding themselves faced with huge increases in ground rent and are discovering that the cost of owning the freehold may be wholly out of reach.
Many of these homeowners now believe that they were ‘mis-sold’ their properties.
The old adage an “Englishman’s home is his castle” may be under threat by the practices of new build property developers selling properties on a leasehold basis and purchasers not being fully advised of the implications of this.
There are two aspects of this that could come back to bite purchasers further down the line: increases in rent being paid to the freeholder; and being quoted extortionate prices to purchase the freehold.
When you buy your new home, you expect to own the bricks, mortar, roof and the land that the house is built upon. Unfortunately, some developers are only selling these properties on a leasehold (or what they have called a “virtual freehold”) basis, which means that you lease the property for the period stated – anywhere between 40 and 999 years, but usually around 125 years.
In some cases, the new owner was not advised about the rate at which their annual ground rent would increase. We have seen cases where what started out at £250 per year doubled every 10 years. This may not seem much now, but in 20 years time when it is £1,000 per year and you can’t sell the property because of this annual expense, things seem quite different. As well as the ground rent charges, the freeholder can also control things like the utilities suppliers, making it difficult for the owner to switch electricity supplier, and buildings’ insurance.
There are also cases where the purchaser has been told they could buy the freehold for the property for £2,000 - £5,000. The owner has then saved up to do this and 18 months later has contacted the developer to tell them they now want to buy the freehold. However, the developer has sold the freehold to someone else, and when the owner contacts them they are told the cost has risen to £34,000.