"Unmortgageable" nearly new homes

Graham_Devon

Appauling story.

Some homes, built in the last decades have become unmortgageable due to spiralling ground rents (where no service is provided) and developers walking away.

The clause put in the original sale by Taylor Wimpey was that the ground rent would double every 10 years for 50 years. It seems the "selected" solicitors you had to use to proceed with the sale didn't mention this.

It also appears that of the money Taylor Wimpey announced to compensate buyers (called the Taylor Wimpey assistance scheme -
ha!!) for their bad practices around selling leaseholds, they will only compensate buyers who bought directly off them, not those who have bought "second hand", even though all the laws etc still apply.

Applies to 62 developments and up to 3,000 homes, including some bought via Help to Buy.

Taylor Wimpey is fast becoming the wonga of the housing industry. How this practice can be allowed, but frankly more disgusting, backed by the government (for whom the buyers will see ground rent doubling PLUS HTB loans kicking in) in todays age is beyond me.

https://www.theguardian.com/money/2018/jan/13/ground-rent-young-homebuyers-charges

economic

Surely there are regulations in place for a registered solicitor to not offer conveyancing services to a buyer if there is a conflict of interest such as being connected with the seller in anyway?

Even so shouldn!!!8217;t the buyer get a survey done to any property they buy and have it clearly mentioned to them what it means for the ground rent to double every ten years and how that affects the resale value?

Come on it!!!8217;s not rocket science! It!!!8217;s basic maths and common sense!!!

Graham_Devon

Agree to some extent to the above, there is some responsibility on the buyer.

However, buyers are not specialists in leases. The solicitor you are PAYING to do this for you, should be. The responsibility of the buyer therefore is to ensure someone (the solicitor) is acting for them. It seems that, in hindsight, that wasn't necessarily the case.

Secondly, we all gain experience from families etc when buying our first homes. No one has yet experienced these sorts of (I want to say scams) tactics by housebuilders. It's all new. So these buyers can't have even forseen these circumstances.

Third, we KNOW that the contracts the buyers signed didn't state that Taylor Wimpey could sell the leasehold on. That's why there is a compensation scheme, because it was unlawful. So reading it 100 times wouldn't have helped.

We know now, and people are more aware now. But the damage to these people is done.

I personally feel it's a little much to expect buyers to know the in's and out's of leases and property law - and if they don't, to simply walk away and never buy a house. No doubt some solicitors have also been caught out.

It may be common sense when you know the problem. But if it's common sense, we'd all know about it. And hardly anyone did - bar those investing and creaming the profits.

The whole thing has been set up as a trap for profit.

chucknorris

Doubling every 10 years is taking a huge risk on what inflation will be (it is over 7% per annum). The old standard clause used to be doubling every 25 years, so 10 years does sound excessive, especially in the low inflation environment that we have been in for a while. It would be much more sensible and far less risky to buy something based on the RPI (which some leases are). Back when I was thinking of investing in ground rents (but decided not to) I would have only considered RPI or over generous (to the freeholder) like doubling every 10 years.

I think the buyers made a poor choice, but maybe more should be done to protect them, or at least educate them.

economic

Ground rents can be thought of as a form of financing. Kind of like a second mortgage. The buyer should consider the price he is paying based partly on what the ground rent terms are. Doubling every ten years suggests the buyer should be buying the leasehold for a pretty significant discount vs a freehold equivalent. So it all depends what the buyer buys it for. Nothing wrong with ground rents in particular. Simply just a form of financing if say the buyer can!!!8217;t afford a higher deposit.

westernpromise

Presumably the housebuilder takes a £400k house, gets £300k from the leasehold buyer, and sells the freehold for the NPV of the ground rent, which is probably..about...£100k.

Seems quite savvy although personally I'd want a discount from the £100k if buying up such freeholds for the regulatory risk I'd be taking on.

Graham_Devon

westernpromise wrote: »

Presumably the housebuilder takes a £400k house, gets £300k from the leasehold buyer, and sells the freehold for the NPV of the ground rent, which is probably..about...£100k.

Seems quite savvy although personally I'd want a discount from the £100k if buying up such freeholds for the regulatory risk I'd be taking on.

Well no, not at all.

Since January 2018, Taylor Wimpey has stopped this practice, and prices of their homes haven't shot up. They are the same prices as they were in November 2017.

So it was nothing to do with the Taylor Wimpey selling the house for less than they might with a freehold. Simply an easy way to make further profits if Taylor Wimpey sold them as leasehold, then sold off the freehold without the purchasers knowledge. This is evidenced all over the place, so not sure why we have to assume the buyer got a better deal buying leasehold over freehold - it's simply not the case.

There is really no way out of this, presumptions or otherwise - put simply, it stinks, and the house buyer was simply used as fodder.

This particular story relates to houses built by Taylor Wimpey between 2007 and 2011. TW put aside £105m to compensate buyers (showing the enormity of the profit to be had here). However, it later turned out that they will only compensate buyers who remain in the house. If it's been sold to someone else, that someone is left high and dry. As is the case with this particular story.

The leaseholds themselves didn't state that TW could sell the freehold on. Only that the buyer could buy it should they wish (suggesting it was "for sale", but not suggesting it could be sold to anyone else. The wording was purposely kept loose, so even solicitors could find themselves stung here).

zagubov

Graham_Devon wrote: »

Well no, not at all.

Since January 2018, Taylor Wimpey has stopped this practice, and prices of their homes haven't shot up. They are the same prices as they were in November 2017.

So it was nothing to do with the Taylor Wimpey selling the house for less than they might with a freehold. Simply an easy way to make further profits if Taylor Wimpey sold them as leasehold, then sold off the freehold without the purchasers knowledge. This is evidenced all over the place, so not sure why we have to assume the buyer got a better deal buying leasehold over freehold - it's simply not the case.

There is really no way out of this, presumptions or otherwise - put simply, it stinks, and the house buyer was simply used as fodder.

This particular story relates to houses built by Taylor Wimpey between 2007 and 2011. TW put aside £105m to compensate buyers (showing the enormity of the profit to be had here). However, it later turned out that they will only compensate buyers who remain in the house. If it's been sold to someone else, that someone is left high and dry. As is the case with this particular story.

The leaseholds themselves didn't state that TW could sell the freehold on. Only that the buyer could buy it should they wish (suggesting it was "for sale", but not suggesting it could be sold to anyone else. The wording was purposely kept loose, so even solicitors could find themselves stung here).

If anyone looked up modern examples of "rent-seeking" in wikipedia and then looked up info on leasehold tenure in domestic/residential property in England and Wales, they'd be hard-pressed to find a better example.:(

Nick_C

If the solicitors who acted for the original purchasers failed to explain the terms of the lease, then surely any compensation should be paid by those solicitors.

Apart from that, there is nothing new about ground rent and review clauses in leasehold properties. And why would a lessee need to be told explicitly that the freeholder had the right to sell the freehold? Again, nothing new in this, and a change in freeholder should make no difference to the leaseholder.

People buying these leasehold houses made bad decisions. No one held a gun to their heads.

economic

Nick_C wrote: »

If the solicitors who acted for the original purchasers failed to explain the terms of the lease, then surely any compensation should be paid by those solicitors.

Apart from that, there is nothing new about ground rent and review clauses in leasehold properties. And why would a lessee need to be told explicitly that the freeholder had the right to sell the freehold? Again, nothing new in this, and a change in freeholder should make no difference to the leaseholder.

People buying these leasehold houses made bad decisions. No one held a gun to their heads.

The issue is that you can explain the terms of the lease and the buyer may understand he has to pay £300 a year then £600 a year after ten etc. But he wouldn’t know what that means in npv terms and that he may be getting ripped off by paying too much of a purchase price for it. A solicitor won’t explain that nor should they. This probably should be the valuers job which of course why would you need one for a new build?

westernpromise

economic wrote: »

The issue is that you can explain the terms of the lease and the buyer may understand he has to pay £300 a year then £600 a year after ten etc. But he wouldn’t know what that means in npv terms and that he may be getting ripped off by paying too much of a purchase price for it. A solicitor won’t explain that nor should they. This probably should be the valuers job which of course why would you need one for a new build?

Yep. If buyers are so dumb they only look at the headline price, a savvy seller will increase the price in some other way.

If you buy a £1,000 TV and the salesman tries to get you to buy an extended warranty, does the price of the TV go up if you don't? Of course not. Extended warranties are just a way of getting mugs who want to pay more for the same thing to identify themselves, so that they can do so. Everyone's happy.

Perhaps they could set the freehold company up as a charity? Those are without exception all 100% above reproach, so nobody would mind paying, nor inquire where the money actually goes. Or they could call the ground rent a "climate change ground rent" instead, to make sanctimonious narcissistic people feel good about themselves?

It might be simpler though if housebuilders simply set an asking price then gave all buyers an IQ test expressed as a percentage of average (100). The price of the house is divided by your score in the IQ test and that's what you pay.

If the house is £100,000 and your IQ score is 83 then you'd pay £120,480. If your IQ's 140 then you'd pay £71,420.

This would produce the same economic results for everybody as selling new houses leasehold to stupid people produces, but it would be a lot more transparent.