Subscribe or upgrade your account to read:

Sale of new-build leasehold houses banned

UK housebuilding

Sale of new-build leasehold houses banned

Ground rents set to zero as government moves to end ‘feudal practices’

© PA

Selling new houses on a leasehold basis will be banned on Thursday and new ground rents will be set to zero in a bid to end “feudal practices” in Britain’s construction industry.

“It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms,” said Sajid Javid, communities secretary.

Mr Javid said the government, which started a consultation in the summer, had received an “overwhelming response” from the public demanding intervention.

Shares in retirement home-builder McCarthy & Stone slumped 9.6 per cent after the announcement about zero ground rent.

The group said this flew in the face of the government’s attempts to ramp up house building and would cause a “disruption in housing supply”.

Spencer McCarthy, chairman of Churchill Retirement Living, said the news was a “kick in the teeth” for retirement housebuilders.

“We welcome the measures to eradicate unfair leasehold practices, but a move to zero ground rents across the board will reduce housing supply in general, and will have a serious impact on the delivery of specialist retirement housing, a sector which is already fragmented with limited supply,” he said.

Other housebuilders saw a more modest fall in share price, with Berkeley down 1.5 per cent, Barrett down 1 per cent and Persimmon down 1.1 per cent.

Traditionally, leaseholds have been allotted to blocks of flats with shared spaces, in order to simplify ownership and split shared responsibilities.

But housebuilders including Persimmon, Taylor Wimpey and Galliford Try have increasingly been selling new houses on similar terms, and then charging ground rent and for permission to make alterations to the property.

The proportion of new-build houses on leaseholds has risen from 22 per cent to 43 per cent between 1996 and 2015. About 1.4m houses across England are on leaseholds, up from 1.2m in 2014/15.

Some of the leases last as long as 999 years while some, at the most extreme, have ground rents that double every 10 years for the first five decades.

In April, Taylor Wimpey set aside £130m to settle disputes on ground rents on leasehold properties.

Ministers see the measure as part of their drive to help “just-about managing” families struggling from stagnant wages and the rising cost of living.

But housebuilders are unlikely to welcome the move. One industry figure said the changes could lead to fewer houses being built across England, and would push up the cost of new houses for consumers.

The ban on the sale of new-build leasehold houses will cover all properties apart from where necessary, for example under shared ownership schemes.

The government will also work with the Law Commission to support existing leaseholders, to help make it easier and cheaper to buy a freehold or extend a lease.

Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.

Content not loading? Subscribers can also read Sale of new-build leasehold houses banned on ft.com