Taylor Wimpey sets aside £130m for leasehold scandal

Housebuilder Taylor Wimpey has set aside £130m to cover claims from customers over leasehold policies that have doubled ground rents for home owners.

The company defended the practice as “entirely legal” but did acknowledge that it had caused “understandable concern”.

Taylor Wimpey initiated a review in February after it was revealed that property freeholds were sold on to third parties who would only sell to the owners for a large premium.

This left customers with unsaleable homes as lenders would not approve mortgages on properties where the ground rents would double every 10 years.

“We acknowledge that the introduction of these doubling clauses was not consistent with our high standards of customer service and we are sorry for the unintended financial consequence and concern that they are causing,” the company said.

The Guardian reported examples last year where homeowners were told they could buy the freehold from the developer within two years only to discover that it had been sold on without their knowledge.

Taylor Wimpey on Thursday said this had been “in line with normal practice”.

It said it was in talks with that customers hit by the doubling clause and had entered negotiations with the respective owners of the majority of the freeholds to “alter the terms of the doubling lease to materially less expensive ground rent review terms”.

“In the event that we are not able to reach agreement with individual freeholders, we will continue to pursue other avenues to help our customers,” it said.

In a half year trading statement, Taylor Wimpey added that the UK housing market remained stable with "good mortgage availability and healthy employment prospects”.

The total order book was up 2% to £2.2bn compared with the equivalent point last year. Cancellation rates fell to 10% from 11%.

George Salmon, equity analyst at Hargreaves Lansdown said while the £130m writedown was "clearly a significant amount", record low interest rates and a chronic UK housing shortage meant the market for new build homes was "continuing its upward trend in the face of Brexit-induced uncertainty" and Taylor Wimpey's dividend shouldn’t be affected.

"Many buyers who previously thought their purchases were ‘virtually freehold’ might have got a nasty surprise when they realised that a just a few hundred pounds a year will spiral to thousands over time," Salmon said.

"This not only means the ground rents are an increasingly large burden for the inhabitant, but it also makes it much more difficult to sell up when the time comes. When another buyer steps in, they will of course need to factor in the higher future obligations, and so the value of the property is impacted. "