The number of new build properties sold under leaseholds has soared in recent years, ahead of a government pledge to ban these “unfair” contracts.
According to the latest ONS figures for the year ending September 2017, new houses were four times as likely to be sold as leaseholds when compared to house sales from existing stock.
Around 15 per cent of new detached houses are now sold under leasehold terms. This is almost twice the number that were sold in 2012 (8 per cent). In 1998 just 4 per cent of new build houses were leasehold properties.
Over this period of time, the proportion of existing houses sold under leasehold has remained fairly constant – between 3 and 4 per cent.
This has prompted fears that property developers are trying to profit from the terms of these leaseholds, before these are banned by the government.
The government has recently announced plans to “cut out unfair and abusive practices within the leasehold system, including a ban on leasehold for almost all new build houses” in England.
As part of a overhaul of the leasehold system the government wants to make it easier for leaseholders to buy the freehold to their property.
The Welsh government has also recently announced similar measures.
Leaseholds are most commonly used for the sales of flats or maisonettes within one building. Here, the freeholder may be responsible for providing communal services, such as arranging the building insurance. These are likely to be charged for separately.
However, the ONS data shows that in the last four years there has been a steep increase in the number of new build detached, semi-detached and terraced properties sold under leasehold.
This ONS data shows that this problem is particularly acute in the North West region, where around 70 per cent of new build homes are sold as leaseholds. This compares to between 1 and 4 per cent of new build homes in the South East (depending on property types).
London also has a high proportion of new build homes sold as leaseholds, with 30 per cent of all new terraced properties now leaseholds. However less than 1 per cent of new build detached properties are sold under these arrangements.
The ONS says that this partly reflects the northern cities tendency to have “historic” leasehold tenures with a negligible or no ground rent, where properties were built on land owned by industry, churches and landowners.
However, this data suggests this is an increasing trend in this region. In areas such as Bury, Trafford and Salford for example more than 95 per cent of new build houses sold (in the year ending September 2017) were under leasehold.
In contrast between 29 and 56 per cent of existing properties sold in this period were leaseholds.
A number of national housebuilders, including Taylor Wimpey, have been criticised for their punitive leasehold terms over the past year.