Buyer Beware: New Build Leasehold Properties Signal Trouble Ahead

For many people, home ownership is still little more than a dream. For some, the hard work they have put into making that dream a reality has led to a waking nightmare. This may sound dramatic, but some have discovered that purchasing a new-build property on a leasehold basis is nothing short of a disaster. While flats are often – although not always – sold on a leasehold basis, the same thing hasn’t typically applied to houses. However, many new builds are now being sold under leasehold agreements. If you buy such a property, you will own the property itself and pay the mortgage on it as you would any other property. However, you will not own the land. This can cause problems regarding mortgages and to the potential costs involved with owning such a property. There have been many reports lately of homeowners discovering they are at the mercy of increasing ground rents on their new-build properties. Some have learned, albeit too late, that the ground rent on their property will double every 10 years. While the ground rent may begin at an affordable rate – one example gave the initial rent as £295 per year – the doubling means it can soar into thousands in the future. An investigation by Which? has also revealed a disturbing trend for so-called ‘permission fees’. This relates to the practice of charging a fee each time the homeowner wishes to make a change or improvement to their home. Some of those who took part in the investigation said they had been charged fees ranging from £60 to get permission to install a doorbell, to £2,500 to install a conservatory. The shorter the remaining leasehold is, the less likely it is you will be able to get a mortgage to buy one of these properties to begin with. Other lenders won’t lend on any properties where the terms state the ground rent can be doubled as described above. Nationwide is one such lender to do this. “Anyone considering purchasing a leasehold property, particularly a new-build property, should be very careful of the terms of the purchase,” said Darren Pescod, CEO of The Mortgage Broker Limited. “We’ve heard stories where people have requested clarification on the terms from the developer, only to find out later they were told the wrong information. Always make independent checks so you know exactly what you are going into. “Buying a property is by far the biggest purchase any of us will make. No one wants that purchase to become a nightmare. I would recommend proceeding with caution if anyone is thinking about a new build that is offered on a leasehold basis. Always check the small print and get a legal professional to check the terms before you sign. It’s always far better to be cautious now than to pay the price later – which could be higher than you think.”