Jennifer Thompson
An Englishman’s home is his castle, but it may also be someone else’s pension if it’s a leasehold property.
Leasehold is the arrangement by which a homeowner only owns their property for a fixed amount of time with a separate landlord, known as the freeholder, owning it and the land it is built on in perpetuity.
There were 4.2m private residential leasehold dwellings in England in 2016 of which 1.4m were houses, according to the Department for Communities and Local Government.
In practice leases often have at least 100 years left to run before they revert to the freeholder, and in the meantime the leaseholder is bound by certain conditions, which may include requesting permission before they make external alterations and, most often, the obligation to pay an annual charge known as ground rent.
Traditionally apartments, in which the financial responsibility for the upkeep of a building is shared between numerous households, have been sold on a leasehold basis.
But in recent years there has been a growing trend for housebuilders, including Taylor Wimpey and Persimmon, to sell new-build houses using a leasehold model so they can sell the freehold as a separate asset.
Related posts:
Adriatic Land now wants £54,000 for my freehold that Taylor Wimpey said would cost £6,000
E&J Capital Partners ‘compelled’ to sell freehold to Taylor Wimpey house to pensioner for £38,000 (plus £4,000 costs)
The Times reports that families ‘lost £3 billion’ on resale of leasehold retirement flats, while developers and freehold speculators made millions
Pensioner paid £38,000 for Taylor Wimpey freehold to ground rent speculators E&J Capital Partners
The Times reports that families ‘lost £3 billion’ on resale of leasehold retirement flats, while developers and freehold speculators made millions
Grenfell cladding crisis prompts the question: what are freeholders actually for?
Admin,
Please post up the rest or a summary as your link to FT requires subscription.
The more Informed I become about the travesty that is freehold and the thoroughly unscrupulous practices of the many commercial Freeholders/ Property spivs ,the angrier I become that successive governments have allowed this oppression of leaseholders ( Tenants/Serfs) to continue.
It is imperative that campaigners do not settle for “ Bread and Circuses “.
I am sure the Freehold portfolio merchants are frantically lobbying government to keep the status quo but with a few crumbs thrown to leaseholders from the rich mans table.
We must not accept this. Freehold should be crushed completely.If one ember is left alight , no matter how dimly it smoulders , a fire will eventually break out.
More is lost through stopping halfway than through total annihilation.
The enemy ( unscrupulous freeholder) will recover and will seek revenge!!!
We must together campaign hard and crush the enemy in body and spirit!,
This also applies to Managing Agents. They must be very Strictly Regulated and given no room to fleece leaseholders.
The reason I felt compelled to post my comment is because I get the feeling rightly or wrongly that leaseholders believe we are on the right track and therefore we can sit and relax. No No No. Now is the time to collectively surge forward and crush the aforementioned….
Remember folks- We are many they are few.
I could not agree more..
Freeholders provide absolutely nothing for the ground rent charged, yet feel that have a right to not only receive a ground rent, but increase it PLUS if you attempt to increase your lease you pay marriage value….which is not part of YOUR LEASE BUT THE GOVERNMENT REWARDS FREEHOLDERS FURTHER, IS BEYOND A JOKE. Marriage value can kick in after just 19 years of ownership from purchasing a brand new apartment!
The Government needs to stop claiming to reviewing matters for leaseholders AND START ACTING IMMEDIATELY…Leaseholders are fed up with endless promises & delays.
Well said Kim.
Leaseholders have found their voice. The only direction we are heading is getting our voice louder and louder. We are not giving up.
Hear Hear.
Leaseholders certainly have found their voice and we will not give up until we have been heard…join the National Leasehold Campaign today to be heard.
I read the report in FT newspaper in a Public library. today.
Its quotes some information about the ground rent fund run by Long Harbour which is under Lord Astor. The fund owns about 160,000 freeholds and claims to be valued at £1.45 billion. and the freeholds are heldin various offshore vehicles which are owned by the fund.
I can calculate the leaseholders will have paid roughly 100 times x £1.45 Billion = £145 Billion for residential leases which decline in value over the long term to Nil. when the lease expires.
£145 billion invested into buying the Leases at say £200, 000 average cost per leasehold property corresponds to 725,000 leasehold units..
What the leasehold system does is transfer the life time savings of 725,000 leaseholders into the bank accounts of those offshore vehicles controlled by Long Harbour.
Does our Sajid Javid as Communities Minister and Law Commision understand the real economics behind the leasehold system ? Its destroying the future economy of UK.
if those leasehold properties were converted to Commonhold title, the $145 Billion of life time savings would remain in the families of some 725, 000 leaseholders.
Not sure about the maths
A flat/house with a ground rent IofW £250 per annum would be worth say £7500 to long harbour. You apply a multiple of 100 so the flat using your formula would be worth £750,000. (Ie 100 times) Whilst in prime Lomdon that is possible it would not be realistic outside of London
Just to bring balance to the cash flows
If the freeholdz are held offshore then we can assume £1.4bn was paid to UK plc and presumably would be expected to grow. Within the IK economy -Depending on investment returns this may or may not outweigh the outgoing funds paid in terms of ground rent and lease extensions
I was looking recently at a freehold title to some 80 flats in a development in Croydon Surrey and the leases started in 1970 and today only 4 flats had not extended . Your model assumes no lease extensions over the entire length of the lease – this is somewhat unlikely
The 1970s estate where I live in Sunderland consists of two blocks of flats, twelve one bedroom and twelve 2 bedroom units. There are also three smaller blocks of self contained two bed flats ( four units per block ) of which I am an occupant. Of the multiple block most are now buy to let, and I know that in my block I am the only one to extend the lease. A quarter of my block is buy to let, the block next door is 50% buy to let, and the remaining block is 75% buy to let. Most have not extended out of ignorance, or can’t afford to because the cost is approx £10000. The flats sell for between £60000 and £70000 with an extended lease, however, who is going to buy when the remaining flats are rented out and the leases are running down. So Stephen your argument doesn’t stand up. Things may be very different in your part of the country and in London where property prices are much greater, and extending a lease can offer a good return when the property is sold, but in many areas the ratio between the cost to extend and the selling price just doesn’t add up. Could you answer this question Stephen, why does it cost double to extend a lease on a flat than to buy the freehold of semi detached house, which has been my experience.
The answer is that in the calculation of the premium for a statutory lease extentsion on a flat marriage value is payable .
On a house marriage value is ignored and only the value of the land (which is about 35% of the value of the property) and the ground rent are used to calculate the premium
Dear I Liddle,
Hopefully new legislation will be introduced which will prevent the property spivs who buy the ground rents to 1970’s estates from cashing in on the lease extension scam.
I presume that’s the only reason they purchase the 1970’s estates?
Or perhaps it’s through altruism and they wish to rejuvenate the block?
My calculation method is based on a block of 36 flats in NW London built in 1993 by Bellway Homes . This block includes 18 x 2 bed units sold from £80K up plus 18 x 1 bed units sold from £55K and up .
So I estimate the total sum paid by the 36 buyers must be over 36 X £70K = £2.5+ Million which is a low figure.
The freehold title of the block was sold by Bellways without offering Right of First Refusal for £28,400 in 1995. The current freeholder still has a legal obligation to offer the freehold title to leaseholders on the same terms but has failed to do so..
If the sum paid for 36 leases (= £2,500,000) is divided by the price of freehold ( = £28,400) , the ratio = 88 times approx but the true ratio must be nearer 100 times.
The leaseholders paid 10%-25% deposit and taken out a repayment mortgage loan over 25-30 years period . The freeholder would paid 30% deposit = £9500 and taken interest only bank loan for £19,000 .
Three months after purchasing the freehold , the landlord company started to demand payments up to £250 /flat for granting landlord consent to sublet and raised the insurance contribution to double the actual premium paid to insure the building.
The leasehold system in E & W is entirely senseless because it transfers the leaseholders savings ( invested in the lease ) into the pockets of the landlord companies controlled by entities based in overseas tax havens and do not contribute to UK taxes.
Sounds like Lord Astor could foot the entire Brexit bill of £50 billion and still have money left over.
A neglected area of investigation are charity Housing Associations like Catalyst and L & Q operating like Lord Astor on regeneration sites all over London.
HA ground rents of £200 to £350 doubling over 15 years and GRs increasing every 10 years by RPI are now the norm.
Expect better from charities and their CEOs, David Montague and Rod Cahill.
Dear Joe,
“ Charity , Smarity”! Somebody once said “ If you want to make a fortune start charity”.( I exclude LKP)
Hopefully the “ Charity housing associations “ will soon receive the same attention as oxfam et al but for different reasons.
Somebody else used the same phrase but suggested a religion
Whatever! I think those who have got the smarts get the message..
BREAKING NEWS FOLKS!!!!
Just heard in R4 that Jeff Fairburn is going to start up a charidee and give “ a substantial “ amount of his 100 million bonus to said “ charidee”.
I refer you to my previous comment to Joe. …….
Cont… Mr Fairburn is reported as saying that he had always intend to give loads of dosh to charidee ????(he probably put rather more elegantly)
So everything is better now girls and boys. Now move along ,nothing to see here.
Last comment on this revelation.
On “City AM” Fairborn is qouted as saying
“ I am setting up a private charitable trust which I plan to use to benefit wider society over a substantial period of time by supporting in a very meaningful way,my chosen charities.” End quote.
Mr Fairburn,
Generally speaking publicising one’s charitable intent demonstrates a distinct lack of breeding?
The way you earned your money was of course perfectly legal, but certainly not moral. Whatever now motivates you to contribute to charity and whatever you are now disposed to give will not make you a “moral” man.
That said, if you wish to donate the LKP and NLC it would help them in their quest to seek justice for those afflicted from the consequences of your company’s actions.
Incidentally Mr Fairburn, would I be correct in suggesting that setting up a “charitable foundation” is a very efficient tax avoidance scheme?
Noooooo Master E. Setting up a Charitable Foundation may be used by some folks as a tax avoidance scheme? Noooo , noooo and thrice Noooooooo Matron.
I ain’t never eard of that before……..
Ha ha ha ha. You would need a heart of stone not to titter . Blimey, talk abaht the bleeding obvious!!
Thank you Stephen for your explanation regarding the calculation of property freehold, and Kim, your comments are always gratefully received. If this government is serious about solving the housing crisis why don’t they reform leasehold thus freeing up affordable housing stock especially in my area. There are currently three lovely family 1970s modern link villas on a neighbouring estate. They have been on and off the estate agents books like a yo yo. The reason, the leases are too short for any bank or building society to grant a mortgage, Had they been freehold they would have been snapped up by now. Just doesn’t make any sense does it.
For leasehold houses ,the leaseholder can buy the freehold title of the house under the 1967 Landlord & Tenant Act.. Many leasehold houses have 900 year leases paying small ground rents which are not profitable to collect. so the cost to enfranchise ( buy the freehold title of the house ) is low recent case at the First Tier tribunal determined the cost at 16.7 time the ground rent ..
For a leasehold flat, the leaseholder only has the right to seek a statutory 90 years lease extension under the 1993 Act .Most blocks of flats were sold with 99 years or 125 years lease and mortgage lenders are not willing to offer mortgage loans when the lease is below 70 years term. .
There are 2 or more flats built over the same piece of land and the individual leaseholder has no right to enfranchise and buy the freehold title for the whole block. The cost of extending the lease by 90 years can convert the lease term from 50 years remaining to . 50 years + 90 years = 140 years term at peppercorn ground rent.
But the cost for statutory lease extension is much higher and where the term has fallen below 80 years, the formula for calculation the cost to pay includes paying 50% of the rise in value of the property to the freeholder.. The leaseholder has to pay for 2 sets of surveying costs and legal costs ( both landlord costs and own costs ) which takes away most of the gain from the other 50% . Quite often there is no capital gain from lease extension which is necessary to enable the next buyer to get a mortgage or the property will not sell.
The existing laws protects the interests of the freeholder and ruins the leaseholder. You can download the free guides to enfranchisement of house and statutory lease extension from LEASE ( http://www.lease-advice.org )
The statement from Sajid Javid MP, DCLG, on 21 December 2017 is unambiguous and includes “making certain that ground rent on new leases are set at zero.”.
The existing individual flat leaseholder has a statute right to a 90 year extension on the existing lease. with ground rent reducing to zero, and it would be an anomaly if new flat leases with ground rent set at zero ended up sitting alongside unchanged existing leases.
The “informal” lease extension scam must be stamped out forthwith as it is incredulous that unwitting and gullible leaseholders can be lured into an arrangement that can then end up being inexplicably approved by the 1st TIer Tribunal – Property.
Sajid Javid states that Government will be “providing leaseholders with clear support on the various routes to redress available to them”. This can only be interpreted to mean that unwitting leaseholders who have already been drawn into the “informal” net will be able to seek “redress” for this PPI style miss-selling.
Legislation should emerge promptly to enable all leaseholders to attain commonhold/freehold on a multiple of annual ground rent and (leaving aside the ongoing criminal scandal of breach of right of first refusal for the present) it should be that all leaseholders of flats and houses, existing and new, be able to obtain new leases with ground rent reduced to zero and a term of years of either plus 9o or 999..
Excellent comments. Dry self on subject.
Katie NLC on twitter linked to a surprise (to me) analysis of the healthy leasehold market, dated 15 February…
https://www.openaccessgovernment.org/leasehold-system-alive-ever-according-statistics/42665/
Seems eejits (my view) are still buying existing leases in droves? Quote: “…of 219,511 leaseholds sold in 2017, 84.1% were existing properties”.
Two tier system coming soon to a property near you? Quote: “I’m afraid that existing leaseholders will probably have to lower the asking price considerably if they want to sell. ” Bet a jam sandwich tribunals won’t knock nowt off for an extension. Not real world after all. Pick a number and double it? Then double it again?
Another article linked to by Katie for the Mortgage Finance Gazette site: “Let’s talk about leasehold” 14 February, reveals how valuers work in this market.
Well worth following Katie on twitter!
In most instances people opt for an informal lease extension because of cost, without realising the implications. Myself and my neighbour both wanted to extend our leases, In my case to protect my asset, my neighbour because he wanted to sell. We both met up at the solicitors office and were presented with various options. I decided to go down the formal route at a considerable cost. My neighbour didn’t want to shell out a substantial amount of money even though he could have afforded to, so opted for an informal lease at no cost other than legal fees. He did query if it would put a buyer off , but was told by the solicitor that it would just be considered an extra bill, like gas or electric!
The upshot of this is that my groundrent is now zero whereas my neighbours increased from £15pa to a whopping £450pa. My neighbour sold his flat to an investor, presumably because of the toxic lease.
If in future a PPI miss selling process comes in, who will claim redress, the new owner ? And what about the others who chose to go down the formal route, are we to be disadvantaged for doing the right thing.
Talk about opening a can of worms.
So your 99 year lease started around 1970s and with around 65 years left, you have paid £10000 for a statutory 90 years extension and got your lease up to 66 + 90 = 156 Years approx and Nil ground rent to pay ?
Your neighbour paid around £9500? for a return to 99 years lease and paying 450 p.a ground rent which is now paid by the buyer ( next leaseholder.)..and facing the cost of lease extension in about 18 years or less ?
The leasehold system is draining the savings and wealth out of Sunderland,.
So make sure your local; MP understands this – taking the wealth out of Sunderland.
Ollie,
Just to clarify, my upstairs neighbour got a new 100 yr lease, paid no premium, only legal fees
and the ground rent increases in line with the RPI every 10yrs.
The other options available were, new 100 year lease, ground rent £170 pa for a £7850 premium plus legal fees and increased as above, or new 100 year lease for £4850 premium, ground rent£320pa and again increased every 10 years in line with the RPI. As you rightly point out any buyer will have to consider extending again in approx 18 yrs.
I agree this money could be used in the local economy instead of lining the pockets of greedy, faceless freeholders.
I shall be contacting my MP who is a member of the APPG.
Ha way the lads.
Ollie just to clarify, I got 90 yrs added to the existing lease for £9500 by going down the formal route. My neighbour got a new 100 yr lease for no premium, he paid all legal fees, but his ground rent increased to £450 pa which is reviewed every 10 yrs in line with the RPI.
The other options available were, pay £7850 premium plus legal fees for a new 100 yr lease, ground rent increased to £170 pa reviewed as above, or new 100 yr lease, for a premium of £4850 plus legal fees , groundrent increased to £320pa reviewed as above.
As you rightly point out this money is draining the local economy, which really needs all the money it can get.
I will be getting in touch with my local MP who is a member of the APPG.
Sorry I’m on twice, I had a malfunction, but hope it makes things a bit clearer.
The message for your MP is :
1. the Leasehold system doe not benefit any of the 4.1 million leaseholders
2. It drains the spending money from leaseholders’ pocket and there is less spending money left in every city, town and village community .
3. It drains the family savings from every leaseholder.pocket and there is less spending money for your family.
4. Scotland and N Ireland have terminate ground rent demands and now ground rents only exist in England & Wales .. Are the E & W MPs less smart than MPs in Scotland & N Ireland ?
The upshot of this is that my groundrent is now zero whereas my neighbours increased from £15pa to a whopping £450pa. My neighbour sold his flat to an investor, presumably because of the toxic lease.
So who lost out?
The neighbour – No he sold his flat and still had £10,000 or so of his capital in place
The investor – he presumably did his due diligence and factored in the ground rent which to him is tax deductible. If the neighbour had done a statutory lease extension then he would have paid more and that additional cost of the flat is not deductible against income unlike the ground rent. If he borrowed to buy loan interest is of course curtailed from 2018
On balance I would think the investor may have overpaid slightly but when amortized over 18 years taking into account the tax deduction on the ground rent I would think the sums involved would be very small
A rent linked to the RPI is hardly toxic. In fact the Nationwide have gone out on a limb and stated that they prefer this to doubling every 25 years or so. It is quite likely going forward that with increase automation in the workplace and the possible emergence of Africa in the next 2 – 3 decades that we could see a collapse in middle class jobs and inflation could well be negative.
Yaaaawn. I agree with Paddy and I liddle.
Incidentally, I hear Lidl are recruiting for shelf stackers.
Hiding behind a keyboard with complete anoyminity is very much the habitat of the spineless individual Enabling them throw out childish insults and name calling
Message to Stephens mum. He should be in bed by now, it a school night.. He is pretending to be a big boy……..
Go for it girl! You might just get lucky.
Nurse , Nurse come quickly, John is out of bed again and refusing to take his medication. ????????
If this was a radio quiz, the buzzer for repetition would surely sound?
Stephen, irrespective of any limbs used by Nationwide, ‘preferring RPI’ is a meaningless comparison as I suppose you know.
Fixed doubling every 25 years ‘or so’ is not automatically worse than RPI unless RPI could be guaranteed around 2.5%. You can’t guarantee RPI.
Meaningful comparison depends on the RPI rate and the review frequency, and still compares apples to pears given one is fixed, the other variable.
We can be confident that fixed doubling less than 15 yearly is bad. Beyond that a fog descends. I can’t be bothered to keep arguing the maths.
Besides, all the government talk of giving a right to dispute RPI reviews… how’s that going to work?
Who decides the applicable RPI in each postcode? A tribunal? Does the hapless lessee have to pay for two valuers to argue at tribunal every time there is a disputed review? Nice little earner with barrister costs to pay on top, no doubt.
Fixed doubling hard wired into a lease reviewed at a minimum of 25-30 years should be enough yield for any trough nuzzler on top of the built in growth as a freehold grows in value on top of RPI inflation.
Feel free not to reply because I’m unlikely to rely on anything you claim.
Stephen
You seem to have an explanation for everything, even though in my humble opinion it is a load of old twaddle.
A rent that is linked to the RPI can hardly be considered onerous. In times of inflation an employee would make demands on their employer to increase salaries to reflect the diminution in their take hone pay
An alternative might be to link ground rent to average earnings and their are various tables published by the Office of National Statistics which could be referenced . This surly would safeguard the interest of the lessee. Again it must be capable of being lowered if average earning fall
Ground Rent was historically only ever a peppercorn rent set at a nominal annual sum. This enabled people living in flats in emerging and growing cities to purchase a stand alone valuable asset providing the same rights and privileges enjoyed by freehold house owners.. Flat owning in any growing city is a property owning asset running alongside freehold on level terms.
Ground Rent was never intended as a means for an unregulated and unscrupulous group of carpetbaggers to create a lucrative stream of income for themselves..
The breathtaking greed of this unsavory lot has ensured its own downfall and the days of ground rent are now numbered. (RPI or other)
Stephen, I think you should find yourself a new source of income – as ground rent is now (…oops) a zero sum game.
Ground rents weee not historically a peppercorn
I have an auction catelouge from 1926 where a number of leasehold properties were being sold by. the mortgagee and the ground rents on those properties was often £5. Per annum . In those days this was equivalent to around a weeks pay for a typical middle class man – equivalent to around £800 to £1000 in today’s money
Streets and streets of terraced house were build and sold in the 1890’s to 1920’s reserving ground rents of around £2 per annum and this represented often the weekly income of a typical family who might have bought them
It was the inflation in the 1970’s that eroded the value of ground rent income and because rapid inflation was new then rather crude attempts were made to correct this by having ground rents double every so many years
Whilst upto now average earnings have out paced the RPI there is concern that with the rise of automation and the pressure on labour costs from emerging markets elsewhere in the world that many jobs will disappear and possibly a safer index is to link rises to average earnings and if the index falls then the rent to fall