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.