The UK has had some form of election or referendum every year since 2014. There was the Scottish independence referendum, followed by the general election in 2015, followed the referendum on the European Union, followed by the snap election this June. What’s more, there’s the strong possibility of yet another election before this year is over.
To say that “Westminster is in chaos” is a clichéd and overused expression, but to say that “Westminster is confused” is about right. When Cameron won his majority back in 2015, nobody would have predicted that Theresa May would be leading a minority government with the DUP to negotiate a Brexit deal just two years later.
While all this confusion is going on, an issue which all parties were once passionate about dealing with has taken a backseat: the leasehold trap. In what has been described as “the PPI scandal of the housing market”, many first-time homeowners have found themselves buying leasehold properties with some nasty surprises hidden in the fine print.
What Is The Leasehold Trap?
To understand what the United Kingdom’s “leasehold trap” is and how so many first-time homeowners have been caught up in it, it’s important to understand how the UK’s leaseholds should work. When people buy detached, semi-detached, or terraced houses, they tend to own the freehold. This means that they own the property, as well as the land the property is on, and so they can do what they want with the building — providing the council approves, of course.
However, if you buy a flat from a block of flats, you won’t be given the freehold to the flat. This is because your flat is in a shared building with common areas — such as stairs, hallways, receptions, and lifts — that need to be maintained by someone. As a result, flat owners in the United Kingdom are given a leasehold to their property, rather than a freehold. Jersey is slightly different in that shared buildings are owned by flying freehold or through a company’s structure.
Leaseholds don’t last forever, so you can’t pass your flat onto someone else when you die. However, most leaseholds tend to be over 80 years, so it’s not a serious problem. What’s more, most landlords have no issue with extending a lease. Leaseholds also come with ground rents which need to be paid to cover the maintenance of the rest of the building, and these don’t tend to cost much money.
All of this was how things used to work. However, as the UK housing market has become more and more lucrative, as homes have become more and more scarce, some landlords have been using leaseholds to trap first-time buyers into paying for ever-increasing ground rents on properties which are impossible to sell because the leaseholds are often less than 80 years.
Unaware of these risks, first-time buyers purchase these onerous leaseholds and are then essentially trapped in a flat which they can’t sell but where they also can’t afford to pay the increasing ground rent.
But things can get even worse. Some landlords are even selling new-build houses as leaseholds, rather than freeholds. The longheld assumption is that a house is always freehold property. However, the leasehold trap has meant many first-time buyers are purchasing houses which they had assumed would be freehold but which are leasehold instead.
How Have People Reacted, and What Can Be Done?
When the story first broke, there was a cross party consensus that something needed to be done about the UK’s leasehold trap. An all-party group made up of 43 MPs and Lords from the Conservatives, Labour, and other parties met up to discuss the issue. A popular solution — backed by MP Justin Madders — is a change in law: ban the sales of houses as leasehold properties.
Yet, without a majority government and with Brexit negotiations taking up all of the column inches in the UK’s newspapers, it will be hard for any single party to push any kind of reform act on leaseholds through Parliament. While leaseholders can take some solace in the cross-party consensus on this issue, as well as Theresa May’s hubris when she expressed interest in working with other parties, the issue remains unresolved, and there is nothing to suggest that this will change anytime soon.
There is some hope, though. The Leasehold Reform Act of 1967 gives leaseholders the legal right to force the freeholder to negotiate a fair deal. The problem with this act is that it leaves far too much wiggle room with its wording. A new or updated reform act will be needed, but at least homeowners have something to work with in the meantime.
Knowing your rights in the Leasehold Reform Act of 1967 while negotiating is one way of ensuring a fair deal after you’ve bought your property. However, to avoid the problem altogether, leasehold conveyancing can go a long way to ensuring that the leaseholds people buy are not complete scams.
In the case of new-build houses, landlords shouldn’t be selling leaseholds at all. In the case of flats, leasehold conveyancing can help people to understand the terms of their leasehold in plain English so as to avoid any nefarious traps.
Yet more good news comes from the Nationwide Building Society. In an altruistic move, the bank is refusing to give landlords mortgages on properties where the ground rent is more than 0.1% of the value of the property. If other banks adopt a similar move, landlords will be forced to reduce the ground rents on their leaseholds or revert back to selling them as freeholds in the case of new-builds.
Then there is Taylor Wimpey, the housebuilders who have been pressured into compensating its homeowners with £130 million after it conceded that leasehold new-builds were so unfair that people deserved their money back. There was no legal reason for Taylor Wimpey to give out that money, but public anger can sometimes be just as powerful a force as the law for making businesses act.
The Leasehold Trap is a Lesson for Landlords, Too
There’s nothing illegal about selling British houses as leaseholds, and there is nothing illegal about putting onerous terms or sky-high ground rents on leasehold flats. However, the public perception of landlords and homebuilders as a result of this scandal is not good. To further abuse the public’s trust by attempting to profit from leasehold traps will make you public enemy number one.
What’s more, if Westminster ever does manage to get its act together, you might soon wind up on the wrong side of the law. Parliament may be in a miserable state at the moment, but there is a cross-party consensus on this issue. When the inevitable reform bill does emerge, it will be the land
Author: Carl Parslow