Fresh hope for hundreds of thousands of home owners trapped in leasehold homes
MORTGAGE prisoners trapped in leasehold homes have been given fresh hope as an investigation into whether they've been mis-sold to has been launched.
The Competition and Markets Authority (CMA) will look into whether people who've bought a leasehold really knew what they were getting into.
It will also examine whether leasehold homeowners are tied into unfair contracts with excessive fees.
Leasehold borrowers are often left with properties they can't sell or remortgage because of dubious doubling ground rent clauses, and the fact they often need permission to make minor cosmetic changes.
The Housing, Communities and Local Government Committee warned earlier this year that leasehold homeowners are being ripped-off by developers, freeholders and management agents.
While The Sun told the story of one family tapped in a home they can't sell as their ground rent doubles every 10 years up to a whopping £8,000.
What if I want to buy a leasehold, what should I look out for?
ANDREW Johnson, money expert at the Money Advice Service has some tips on what to consider before buying a leasehold.
- Check how many years are left on the lease. You may struggle to get a mortgage on a leasehold property which has less than 80 years to run. A short lease will be a lot more expensive to extend.
- Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your property's saleability in the future.
- Ask how much the ground rent is. This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
- Ask about service charges and other related costs. This generally covers repairs or maintenance to the property including building insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
It's not clear how many people this affects but Housing Minister Heather Wheeler recently suggested it is between 12,000 and 100,000.
According to the Government, around 4.3million homes - both flats and new builds - in England are leasehold.
This is where you own the property for a fixed period of time but you don't own the building or the ground it sits on.
Because of this, the leaseholder typically pays an annual ground rent to the freeholder who owns the building.
But a report by trade body NAEA Propertymark found that more than half (57 per cent) of leaseholders didn’t understand what being a leaseholder meant, while 48 per cent were unaware of escalating ground rent clauses.
To make matters worse, some leaseholds are often quickly sold on to third parties, despite home buyers being told they would have the opportunity to buy the freehold, which would then vastly increase the cost.
The CMA first revealed plans to look into the issue last month and it has today issued a call for evidence.
You can email any thoughts you have to the CMA using the on its website by July 12.
George Lusty, senior director for consumer enforcement at the CMA, said: "Buying a home is one of the most expensive and important purchases a person can make.
"So, it’s essential they fully understand the contract they are signing – including whether they will have to pay more than they bargained for.
"Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future."
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The watchdog adds that it could take enforcement action to change how companies operate.
Mark Hayward, chief executive of NAEA Propertymark said: "For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property which has led to three in five (62 per cent) feeling like they were mis-sold.
"Buying a property is a huge undertaking and it should be an exciting time, but for thousands of homeowners, it’s led to financial difficulty as they’ve become trapped in confusing contracts with freeholders."
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