Leasehold scandal: One in ten London leaseholders considering selling their homes over escalating costs
Escalating ground rents and service fees have 13 per cent of London leaseholders considering selling up, new data from Barclays has revealed.
That’s three time the national average of four per cent of leaseholders considering selling their home.
The report found that just 35 per cent of London leaseholders feel their ground rent and service charge fees are affordable, suggesting that 65 per cent are struggling to keep up with their costs.
Only 13 per cent of leaseholders in London feel that they are getting good value for money with their ground rent and service charges.
Leaseholders reported feeling blindsided by these costs, which increase the longer the contract goes on. In London, 34 per cent of leaseholders said that they were not aware when they purchased their home of the rate at which their ground rent and service fees would increase.
“Many homeowners have been hit by high service charges in the wake of increased inflation.”
Mark Arnold, Head of Savings and Mortgages at Barclays
Barclays also found also found that 29 per cent of leaseholders reported that they were concerned that they would not be able to sell their property due to the high ground rents and fees associated with it.
Most new build homes in London are leasehold. This means that the owner must pay an annual ground rent to the freeholder for the land their property is built on. Ground rent increases at a fixed rate, and can double every 10 years. Leaseholders must also eventually pay to increase their lease.
“Lenders will want to know about any financial obligations to make sure mortgage payments will be affordable alongside other outgoings.”
Mark Arnold, Head of Savings and Mortgages at Barclays
Leaseholders must also make monthly payments to the company responsible for maintaining the building and the surrounding area, and for covering building insurance. Inflation has seen these costs increase – along with people’s mortgages and energy bills, all in a cost-of-living crisis.
If leaseholders fall behind on their payments, their property can be seized under forfeiture laws.
High ground rents can be a barrier to re-mortgaging or selling a leasehold property, as the buyer must be able to prove they can shoulder the future costs.
“Many homeowners have been hit by high service charges in the wake of increased inflation,” said Mark Arnold, Head of Savings and Mortgages at Barclays.
“Prospective buyers considering a leasehold property, especially in managed flats, should ask about these costs early in the process — not just for peace of mind, but also because lenders will want to know about any financial obligations to make sure mortgage payments will be affordable alongside other outgoings.”
The Leasehold and Freehold Reform Bill, currently on its second reading in the House of Lords, has outlined plans to make life easier for leaseholders.
Under the draft legislation, ground rent would be reduced to a “peppercorn rate” of 0.1 per cent of the freehold value, upon the leaseholders payment of a premium. Leases would also be granted an automatic 990-year extension.
New leasehold homes would be banned, but not leasehold flats, which account for the majority of leasehold properties in London.
Originally the government promised to outlaw the leasehold system entirely. There are also fears that the ongoing consultation over a ground rent cap is vulnerable to lobbying from investment funds with large stakes in freeholds.
