In our latest blog, Keats Estate and Letting Agents share a valuable insight into the so-called ‘leasehold trap.’ It comes as the Competition and Markets Authority is set to carry out an inquiry into the leasehold market. It is the latest in a line of investigations and it will look at whether consumers are being treated fairly.
Rita Tinney Keats Sales and Lettings Director said: “When they purchase a leasehold property virtually no buyer realises that they are entering into an archaic arrangement which only exists in the UK. No other country in the world works on the principle of ‘leasehold’. The more usual tenure is ‘commonhold’ with each owner having a share in the building and an equal voice in its management.
“You can never ‘buy’ a leasehold flat – by agreeing a purchase you become a tenant or long leaseholder subject to the paying of service charges and ground rent which can increase over periods of time.
“Very few long leaseholders also realise that while failing to pay your service charges can mean being taken to court; failing to pay your ground rent leads to forfeiture or in other words, the freeholder can take your home away from you.
“Following on from all the publicity currently being allocated to the subject of leaseholds we are starting to see a shift in attitude by lenders. At Keats, we have recently had two sales abort due to the lender reviewing the service and ground rent charges. On one occasion the lender noted on receipt of the management pack that the service charge would double in the coming year from £1500 pa to £3000pa and they withdrew their offer to lend.
“In the second, a buy to let investor (previously in receipt of an Advance in Principle) was told by a major bank that they would not lend on the property as it was a leasehold and they were worried by the risk of forfeiture should the client be unable to pay the ground rent charges due to a lack of rental income.
“While leaseholds appear an attractive investment to first time buyers and investors due to their asking prices generally being lower than freehold homes, overall during the period of ownership, leaseholds can cost significantly more by way of unpredictable service charges and potential lease renewals and the sooner there is a robust government policy to provide security to long leaseholders the better.”
Value My Property
Check mortgage eligibility online