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Leasehold scandal pushes freehold house price premiums to eight year high

The price premium being paid for a freehold property by home buyers in England and Wales is at its highest since 2011, enhanced by issues relating to leaseholds, new research suggests.

Using property transaction data, estate agents Benham and Reeves found that the price gap between a leasehold and freehold property was 14.3% in 2011, dropping consistently year on year to just 5% in 2014.

It then increased to 6.9% in 2015 and stayed at around this level before increasing last year in the wake of the leasehold scandal. So far in 2019, the gap has widened from 8.3% in 2018 to a notable 12.3% this year.

Freehold has historically been the preferred method of buying as the home buyer owns the property and the land it sits on and isn’t required to pay any ground rent of service charges. It also means you pay lower conveyancing costs when buying.

However, just over a year ago a leasehold scandal saw new homes sold with soaring ground rents as a result of developers selling freeholds on behind the back of sellers, and this has clearly had an impact with homebuyers paying even more to avoid such a situation.

The largest freehold price gaps are in London’s prime market, with Camden home to the highest with a 227% increase while in Kensington and Chelsea, the average price paid for a freehold property is £4.4 million, some 190% higher than the average price paid for a leasehold at £1.5 million.

Home buyers in Elmbridge are paying 159% more for a freehold, followed by the City of Westminster, Islington and Hammersmith and Fulham.

While London is home to the majority of the largest gaps, Chiltern is home to the next largest freehold price premium outside of the capital at 105%, with South Buckinghamshire also ranking in the top 10 with a 92% freehold property premium.

Despite last year’s revelations, there are still two areas where home buyers are paying more for leasehold homes. Tameside and Sunderland are home to an average price paid for leasehold homes some 6% and 4% higher than freeholds.

‘There is no doubt that the leasehold scandal has had a severe impact on buyer sentiment and the amount people are willing to pay to avoid any of the potential nightmares that unfolded last year,’ said Marc von Grundherr, director of Benham and Reeves.

So much so that the premium paid for a freehold home has already hit its highest levels in nearly a decade and will no doubt continue to do so. A freehold is always the preferable path when buying but unfortunately, not everyone can secure themselves a foot on the freehold ladder, either due to a lack of stock or the additional financial cost,’ he added.

Source: Property Wire

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Leasehold axed for all new houses

All new-build houses will be sold as freehold in a bold move to tackle unfair leasehold practices, and ground rents for new leases will be reduced to zero, the communities secretary has stated.

In a wide-ranging speech to the Chartered Institute of Housing conference in Manchester today, James Brokenshire MP confirmed plans to abolish the selling of new houses as leasehold properties. This will prevent future homeowners from being trapped in exploitative arrangements.

New rules will also be introduced to stop freeholders and managing agents taking as long as they want – and charging what they want – to provide leaseholders with the information they need to sell their home.

There will be a new time limit of 15 working days to provide information and a maximum fee of £200. This should make the home buying and selling process quicker, easier and cheaper.

Help to Buy

The secretary of state has also instructed Homes England to renegotiate Help to Buy contracts to explicitly rule out the selling of new leasehold houses, other than in exceptional circumstances, to protect new home buyers from unscrupulous charges.

Where buyers are incorrectly sold a leasehold home – saddling them with a property that could ultimately prove difficult to sell – consumers will be able to get their freehold outright at no extra cost.

A further 18 property developers, managing agents and freeholders – including Crest Nicolson and Keepmoat Homes – have signed up to the government’s industry pledge.

This commits them to freeing existing leaseholders trapped in onerous deals where ground rents double every 10 or 15 years. This takes the total number of signatories to over 60.

Other proposals

Other proposals unveiled include making it easier for renters to transfer deposits directly between landlords when moving; extra funding for 19 new garden villages with the potential to deliver 73,554 homes; and new measures to speed up planning applications.

New Homes Ombudsman

A consultation has been launched on redress for purchasers of new build homes and the setting up of a New Homes Ombudsman to protect the rights of homebuyers and hold developers to account.

The consultation seeks views on the detail of the proposed legislation and runs until 22 August.

£2 billion affordable homes funding

The communities secretary has opened the bidding process for £2 billion in long term strategic partnerships to deliver additional affordable homes through housing associations with funding available until March 2029.

The government says these new bids will continue to build on the 430,000 affordable homes delivered since 2010.

Comment

Brokenshire said: “We have long recognised that we have a responsibility to confront unfairness in the leasehold market. Last year we consulted on proposals including the leasehold house ban and ground rent reduction.

“Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year.

“And we will legislate to ensure that in the future – save for the most exceptional circumstances – all new houses will be sold on a freehold basis.

“We are committed to taking bold action to reform the sector and will be pressing ahead as soon as parliamentary time allows – helping us delivery our promise to make the home buying and selling process quicker, cheaper and easier.

“The government’s proposals have already had a fundamental impact on the housing market since they were unveiled, with the sale of leasehold houses falling from 11% to just 2% this year.”

By Joanne Atkin

Source: Mortgage Finance Gazette