A group of influential MPs is demanding changes to the UK leasehold system and is asking for an investigation into mis-selling with possible compensation.
The Housing, Communities and Local Government Committee (HCLG) is concerned with the number of householders trapped in unsellable and unmortgageable homes because of the terms of their leasehold.
The committee says leaseholders on new properties are often treated as a source of profit and has asked the Competition and Markets Authority (CMA) to investigate possible mis-selling and examine the possibility of compensation.
MPs also heard that many people were not made aware of the difference between leasehold and freehold at the point of purchase.
Freehold v leasehold
Buying a house freehold means the purchaser owns the land the building sits on. If the property is leasehold they only own the building and someone else owns the right to the land.
The householder is then obliged to pay that person or company ground rent every year.
A committee spokesman said: “It is clear that many of the leaseholders we heard from were not aware of the differences between freehold and leasehold at the point of purchase, in particular the additional costs and obligations that come with a leasehold property.”
Problems surrounding the sale of leases have been highlighted over several years.
Last year the government banned leaseholds on new builds after 6,000 homeowners protested about the sale of leases top third parties who then inserted clauses in the agreement allowing them to double the ground rent payable every 10 years.
The uncertainty of what might happen to the leasehold in future, especially the possibility that the ground rent could rise to thousands of pounds a year over a period of time has made such houses almost impossible to sell.
A third of all freeholders wanting to move reported difficulties in selling their current home and leaseholders are also often charged additional fees if they want to make any home improvements.
Some have reported being charged £1,422 to install double glazing, £887 to change the kitchen units, £689 to replaced flooring, £527 to be allowed to change their blinds and £411 for installing a new front door.
Developers claim that prospective purchasers are given all relative information as part of the sales process, but the committee said it had heard evidence to the contrary, highlighting failings in the current process.
It reported claims of ‘onerous’ ground rents, high and unclear services charges and one-off bills, unfair permission charges, imbalanced dispute mechanisms, inadequate advisory services and unreasonable costs to extend leases.
Landlord and tenant
It added that owners of leasehold properties were in a ‘landlord and tenant’ relationship with their freeholder.
Now it is calling for a standardised key features document provided by either the developer or estate agent at the start of the process.