New Build: Leasehold "Scam"

steeeb

Ive seen this mentioned a lot lately and was even on the news tonight.

For those that dont know some developers are selling the houses leasehold with 999 year leases with ground rents of say £295 a year. Some of these double every 10 years.

They then sell the freeholds to investment companies to get there money out and i assume so they then dont have to deal with the upcoming realisation...

£295 thats cheap right? 999 years - as the developers put it its basically freehold if they live 100 years itll still have 900 years.

In 50 years the ground rent would be 9440. In 100 years itll be 302080 per year!

The investors buying the freeholds know this so are then charging like 30k for tbe freehold only a few years in and charging thousands for permission for extensions and convervatories. Developers know this and get a nice back hander from the investment companies for the freeholds and totally lull purchasers into trying to make them not worry about it.

How does something like this ever get past a half-compitent solicitor though? What happens to all these owners in 70 or 80 years when ground rent could bankrupt them (assuming it can still be enforced)?

hazyjo

I doubt these people - or the next owners - will be on today's wages in 100 years' time lol.

House prices have traditionally doubled every 10 years too.

economic

Doubling every ten years is basically the ground rent increasing by 7% a year. This is way more then inflation currently and could be way more for a some time. Clearly this is a scam and it should be completely avoided so people don't buy into it unless of course the purchase price was at a discount to similar property with no ground rent.

AlexMac

Old news
https://www.theguardian.com/money/2016/nov/05/ground-rent-scandal-engulfing-new-home-buyers-leasehold

But it gets really interesting after 100 years; for example £295p.a. will turn into £1.2p.a. million after 130 years...

And before you say, so what?... consider that my last property- a leasehold conversion, was 140 years old!

Davesnave

steeeb wrote: »

How does something like this ever get past a half-compitent solicitor though? What happens to all these owners in 70 or 80 years when ground rent could bankrupt them (assuming it can still be enforced)?

We don't know that it does.

By the time this sort of thing is discussed, the purchasers have often made an emotional commitment to a property, and although they may 'love' it, in most cases they'll not expect to be there more than 10 years.

So it may often be a case of, "La, la, la, I can't hear you!"

Of course, in 10 years or so, when this is all better-understood by Joe Public and estate maintenance charges are biting, new -build leasehold houses may well develop a stigma comensurate with a serious reduction in value, compared with freehold.

I think it's likely those who ignore this now will pay, eventually.

csgohan4

It's not a scam, because your supposed to read the LR deeds and ensure you make an informed decision.


LH houses/flats tend to be cheaper than Freehold and may be suitable for certain people


Now if you sign without looking at this, then what can I say...

kinger101

I think the con comes from later on down the line when someone wants to sell the property. They get told by the EA they've !!!!!! all chance of selling a LH house (particularly if it's up north), and should buy the freehold. The freehold which could have been bought for say £4K when new has been sold shortly after the development has finished, and they now want £30K for it.

What with the instant negative equity one gets from a new build anyway, another five figure sum on top of that means many people are trapped.

I know more savvy buyers would get the FH at the outset, but not all FTB think ahead.

glasgowdan

csgohan4 wrote: »

It's not a scam

Of course it is, and no amount of devil's advocacy will change that. Just because it's not hidden doesn't make it honest and reasonable.

They rely on people ignoring the realities of leasehold, or thinking things won't be as bad as they could actually be. I still wonder, however, why on earth anyone would buy into leasehold. It seems to be like giving away all of your money for someone else to control and take chunks for themselves whenever they like.

Marvel1

Why I never buy leasehold and just freehold.

I think buyers have their eyes closed and just see a brand new home lets buy it and ignore everything else.

ruperts

Not sure it's strictly a scam but it's definitely taking advantage of people's ignorance and desperation to get on the housing ladder. Ditto service charges on leasehold flats. I'm quite appalled that the government is turning a blind eye to it all, indeed they are constantly giving the go ahead to more and more of these leasehold properties even though they clearly must know that thousands of people are walking into a trap they'll struggle to get out of. The government just don't care though. Or perhaps they do care but not quite enough to sacrifice the kickbacks they're undoubtedly receiving for allowing it to continue.

Mr.Generous

except NEVER is too extreme. I've bought two leaseholds which I doubt would put anyone off. The first has what's called a peppercorn rent. Ever heard the phrase?

The ground rent was 2 peppercorns per year. They didn't bother collecting it and haven't done for many years I believe.

The second is over 100 years old on a 999 year lease, the ground rent is 50p per year. I just sent £5 and asked for a reminder in a decade.

Both leasehold that some buyers wont touch. The first sold for £30k more than purchase price after a refurbishment, the second is returning a 9.5% yield tenanted.

look at the actual costs rather than the category, leasehold shouldn't automatically put you off.

Peppercorn rent: Peppercorn rent is a phrase in its own right, dating back several centuries, meaning a very low, nominal or token rent given as “a simple acknowledgement that the tenement virtually belongs to the person to whom the peppercorn is given”, as Brewer’s Dictionary of Phrase and Fable has it. But this negligible financial exchange was once quite literally pepper-based