UK home owners £4bn bill to extend leaseholds, says report

Home buyers across the UK may have to shell out £4bn to extend their leases on their properties, according to a report from the HomeOwners Alliance (HA).

The report said 1.57m British 'owner-occupiers' did not own their home in the eyes of the law and called for leasehold to be scaled back in favour of commonhold.

“Were these numbers to be included in official government figures, the true rate of homeownership in the UK (which is already declining) would plunge to just 58.9%, a figure comparable with the early 1980s,” the report stated.

The HA said there was an increasing trend for new build homes being sold as leasehold, with developers selling on the lease to a separate company for a healthy profit. New landlords then cash in with ground rent clauses that often double the price and make a property almost unsaleable.

It added that the current system of commonhold – where owners have freehold but share responsibility for the building – had been a “massive disappointment” with “virtually no impact”.

The report said this was due to developers increasingly selling new build houses and flats as leasehold in order to reap a profit later.

“Why would a housebuilder hand over commonhold ownership to flat buyers, when it can retain the freehold and sell that freehold on to investors at a premium a few years down the line, and collecting ground rent and administration fees in the meantime?” the report stated.

The report found that only 58% of leaseholders surveyed by the HA said they knew the length of their current lease, and of those that did 24% said that it was under 80 years.

This is typically seen by agents and mortgage lenders as the point at which the lease begins to adversely affect a property’s value and ‘mortgageability’, the HA said.

“Analysis of these figures suggests that over £4bn will need to be paid to freeholders by leaseholders to extend these leases over the coming years,” it added.

The group's chief executive Paula Higgins said the government needed to legislate to “avert a full-blown crisis”.

“Unscrupulous and avaricious actors within the property industry are using sharp leasehold practices to line their own pockets and fleece householders,” she said.

“Developers and estate management companies rely on leasehold to bamboozle consumers, charge exorbitant administration fees, ever increasing ground rents and render properties unsellable.”

Higgins said the problem was made worse by the fact that many estate agents were ignorant about leasehold and fail to inform and educate their customers properly.

Further research by the HA showed that less than half of adverts on popular property websites were clear as to the correct tenure of a property with only 49% of flat listings specified whether the property was a share of freehold or a leasehold property. In addition, 24% were specific about the length of time left on the lease.

John Healey, the opposition Labour Party's housing spkesman said: “This report shines new light on the difficulties faced by some homeowners who own their home on a leasehold basis. Often in the dark about the exact terms of their lease and currently unprotected from punitive terms including huge rises in rip-off ‘ground rents’."