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More houses make for a better balance

The plight of leasehold new build home owners has been well documented and earlier this year the government moved to ban such arrangements going forward.

But if anything, this episode highlighted the conflicts in the home-buying chain that means a customer’s welfare is not always at the heart of the process – even though it should be.

The number of leasehold houses in England is significantly higher than previously estimated, according to the Department for Communities and Local Government. It estimated in September that there were 1.4 million leasehold houses in England in 2015-16, compared with the previous estimate of 1.2 million in 2014-15, following a change in methodology to include socially rented properties.

For those trapped in leasehold houses, there is a long road to travel. The government has said it will consider what it can do to help the hundreds of thousands of existing leaseholders who face “onerous” annual payments.

While some lenders have stepped back from the market, finger pointing has already begun. But regardless of where the blame for this episode lies, the entire development in new build highlights a paradox. It’s unlikely that in any other walk of life you would buy or undertake such a large financial commitment with unknown or very onerous foreseeable liability.

The question is what causes people to throw caution to the wind or at least ignore their better instincts. Home buying is for most people an emotive business and combined with the inexperience of first-time buying, it’s easy to see how many can end up on the wrong side of a bad deal.

Notwithstanding all the advice out there, or perhaps in ignorance of this counsel, first-time buyers do exactly this every day of the week. While many are correctly advised of these facts by their conveyancer it seems clear the lack of supply again has enticed people to sacrifice the mid-term financial downside for the immediate ability to get a house.

A lack of supply has once again led to consumer detriment, which is why it is so important we endeavour to address this national housing crisis. By re-adjusting the odds in favour of buyers, we can mitigate their purchase risks.

Source: Mortgage Finance Gazette

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UK housebuilders fall after ban on new home leaseholds

Shares in UK housebuilders fell on Thursday after the government banned the sale of new homes on a leasehold basis, starting immediately.

The government said new ground rents would be set at zero as it aimed to end “feudal practices” in Britain’s residential construction industry.

Leaseholds are traditionally applied to flats and apartment blocks where the upkeep of shared spaces is maintained by the building’s leaseholder, who charges residents a “ground rent” to pay for this maintenance.

Single-occupier ground rent

But more recently, some housebuilders have applied such charges to new, single-occupier builds for the permission to make changes to the property. It is this practice that the government aims to stop with the new rules.

Sajid Javid, communities secretary, said: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.”

McCarthy & Stone tumbles

The government estimates that about 1.4 million households across England are on leaseholds, up from 1.2 million in 2015.

The announcement hit shares across the sector. Worst hit was retirement housebuilder McCarthy & Stone, whose chief executive Clive Fenton (left) criticised the government’s actions.

He said: “The proposal to set all ground rents to zero will result in a disruption of housing supply and contradicts the government’s stated objective of seeking new sources of housing.”

The company had expected to generate nearly £33m in profits from freehold reversion sales in 2018. Shares in McCarthy & Stone tumbled 10.59% to 152p in the first hour of trade on the London Stock Exchange.

Other market reaction

Other housebuilders were also lower. Persimmon lost 1.14% to £26.91, while Barratt Developments shed 1.01% to 636.5p, Taylor Wimpey fell 0.82% to 204.3p and Berkeley Group slid 1.67% to £41.39.