In a recent BBC documentary, The Leasehold Trap, housing reporter Tarah Welsh investigates how skyrocketing service charges are blighting the lives of many people living in leasehold homes in London and the east of England.
Leasehold is a centuries-old form of tenure that is unique to England and Wales. People who buy their home with a lease buy the right to live there for a given number of years but don’t own the land itself, regardless of whether it is a house, or a flat in a building. Leaseholds are popular with builders because its becoming more difficult to make a profit on housebuilding alone; instead, they build in a leasehold as a way of ensuring profits for decades to come. Often this includes extortionate service charges which are regularly increased beyond the rate of inflation.
Most campaigers against leasehold support the alternative system of commonhold, a type of property ownership that gives individuals freehold ownership of a unit within a building, while also sharing responsibility for the common areas with other unit owners.
As the government considers reform of the leasehold system, the documentary considers whether some property management companies are engaging in sharp practice and overcharging. From a family home damaged by a leaking roof to a flat where the service charge is higher than the mortgage payments, the programme examines if leaseholders are getting a fair deal.
In London, there are 1.4 million leasehold flats. Two years ago, leasehold constituted 99 per cent of all new-build sales in the capital. Leaseholds make up 36 per cent of its housing stock and are often the only properties ordinary buyers have a hope of ever affording.
Charges
The typical leaseholder in London is highly likely to have a mortgage and be a first-time buyer, according to the Office for National Statistics. The ONS also says that the average service charge in London is around £2,000 a year, while Hamptons finds that 20 per cent of leaseholders in the capital pay over double that. These costs are in addition to mortgage, utility and ground rent payments. Yet just eight per cent of Londoners are opposed to abolishing leasehold.
Writing on website OnLondon, leasehold campaigners Jane Hewland and Harry Scoffin say: “In recent years, a consensus has emerged that leasehold tenure is an inefficient, iniquitous and unnecessarily expensive way of organising flats. Beyond England and Wales, most countries, including Scotland, have democratic, resident-controlled systems of flat living, which go by names like “tenement”, “condominium”, “co-operative” and “strata title”. There are no feudal-style overlord freeholders calling the shots in a block of flats and dictating the charges that flat owners must pay in order to keep their homes.”
Abolition
The government has finally published a timeline for when it will abolish the leasehold system – In a Written Ministerial Statement (WMS), housing minister Matthew Pennycook gave the first details of how quickly Labour intend to axe the controversial form of homeownership, as promised in their manifesto. In his WMS, Mr Pennycook said the government will introduce a “comprehensive new legal framework” on commonhold, including banning the sale of leasehold flats and converting existing leasehold tenures to the new model.
But while the news has been welcome by some, others say it’s too little too late. Sebastian O’Kelly, of the Leasehold Knowledge Partnership, welcomed the announcement as the “death knell of leasehold”, advising people not to buy leasehold properties as “the market will force pace on this”, pointing out that some developers have recently come out in support of commonhold, while others “whose reputations have been shredded by the Grenfell findings will follow”.
He told Sky News: “With this momentum the reforms to improve the blighted lives of existing leaseholders will be eased. Government may think this process will be slow, but house builders will know that the leasehold game they have played so assiduously is busted.”
There was a more muted response from the National Leasehold Campaign, which has spent six years trying to dismantle the system. “Our main concern now is the fate of existing leaseholders who are currently suffering at the mercy of unregulated managing agents and unscrupulous freeholders,” it said.
Commitment
Industry body Propertymark commented: “The UK Government set out in the King’s Speech its wider plan to rectify some concerns with the leasehold process. It is committing to draft legislation in 2024/2025 that will bolster leaseholders’ rights to extend their leases and the right to manage. The legislation will tackle currently unregulated ground rents, remove the threat of forfeiture, and restrict the sale of new leasehold flats moving towards commonhold as a default.”
“Whilst this is only a commitment to draft legislation, it is important to anticipate these changes, and Propertymark welcomes the commitment as we have lobbied for the change over the last five years.”
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