What impact does the ban on New-Build Leasehold Houses could create for Leaseholders in the UK?

For more than hundreds of years, the UK has had leasehold homes. But, the situation has changed since past few months when the ground rent emerged as a major problem among many leaseholders. Now the government is proposing a complete ban on new houses sold as leasehold, and reducing ground rents to zero.

What’s the Government’s reason for a leasehold ban?

The new leasehold ban is an attempt to create a consumer-friendly system that will consequently reduce the exploitation of homeowners through escalating ground rents. This move in England follows the banning of leaseholds in the neighbouring countries like Scotland. This ban will apply to most new-build houses in England. 

Here's how the real problem started:

The issues with the UK’s leasehold market broke out following the widespread outrage over exploitative contracts. 

In recent years it has become common practice for residential property developers to sell new build houses on a leasehold basis, rather than on a freehold basis. This has left homeowners with the requirement to pay annual ground rents and service charges, which are often substantial.

The real issue is that many of these leasehold properties were sold with terms allowing the ground rent to double every ten years, meaning these costs could quickly escalate. As a result many mortgage lenders were unwilling to lend on these new build leaseholds, making it virtually impossible for some owners to resell their homes.

Another issue was that developers were selling the freeholds to offshore firms, making it harder and more expensive for homeowners to buy the freehold when they became eligible. 

Under the UK leasehold enfranchisement laws, leaseholders must have occupied a property for at least two years before they have the legal right to force the freeholder to sell them the freehold.

How the changes will affect leaseholders?

•These changes will benefit those looking to buy new- build house by allowing them to buy the freehold at the outset, rather than feeling trapped into a leasehold deal. 

•The changes will prevent new houses being sold as leaseholds. 

•But, it could leave existing leaseholders in a worse position, as it will make their houses seem even less desirable by comparison. 

However, it has been suggested that these changes will create a two-tier system that discriminates against existing leaseholders. 

How to protect your interests when buying leasehold property?

When buying a leasehold property, it is absolutely essential to understand the full terms of your lease and how these will impact you in the future, including your ability to resell. It is therefore strongly recommended to use a conveyancing firm with plenty of experience in handling leasehold property.

When the leasehold ban is expected come into effect?

Leasehold ban’ is likely to come into effect with new regulations in 2019. 

While it’s not a complete blanket ban, the new leasehold regulations will certainly shake up the industry and could simultaneously create new problems of its own.

It’s always difficult to predict the exact outcome of any regulatory changes, but it could create some reasoning and fears surrounding the upcoming changes to leasehold regulations.

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