Tread very carefully when looking at leasehold.
Byline: HOME ADVICE With Alex Neill of Which
You've left the renters and joined the buyers. But as well as council tax and home loans, you could face extra charges - which can zoom upwards. Welcome - especially if you have a newly built house - to the world of leasehold and "fleecehold". Unhappy purchasers including Which? members report facing escalating costs, with "ground rent" and "service charges" sometimes doubling every 10 years.
This has left some homes potentially unsellable with some lenders picky about leasehold properties. The government has promised to reform leasehold - but that might not help current owners, and there are no firm dates.
The worst difficulties are in some recent new build houses sold as leasehold instead of the more customary freehold in England and Wales.
The system is different in Scotland.
But even freehold can come with strings - some new builds have "service charges" for communal spaces and sometimes roads, which can inflate. This is "fleecehold" - a new problem affecting new estates.
Leasehold used to apply mainly to flats where no resident owns the land and where service charges for areas owned in common such as entrance and stairwells are needed. At the end of the lease, the property reverts to the freeholder.
Leasehold can start out cheaper but unlike freeholders who own the land where the property sits, leaseholders pay "ground rent".
top Leases for 999 years sound long. But small print clauses can double ground rent every 10 years, that's 16 times after 40 years turning an affordable PS400 a year into PS6,400 - and that's on top of mortgages, council tax, insurance and maintenance. At the same time, anyone wanting to buy back the freehold could face a vastly inflated bill compared to the original promised deal. Freeholds can be sold to investors who may demand amounts for the freehold running to ten times original quotations. Leasehold is increasingly used for new-build houses, although it was supposed to have been 1. Avoid can - that a than can the and the cost to 2.
on the way out. In 2002, the government introduced "commonhold" a system where all the flat owners have an equal stake in the land and common parts.
This is similar to the "condominium" system in the United States and schemes in most other countries. But commonhold has failed to catch on.
Some new build firms have now abandoned leasehold - and a few are trying to remedy the situation.
But those stuck with it may find homes difficult to sell or only at a discount, because some lenders, including Nationwide, refuse to grant mortgages on properties with onerous ground rent clauses. And conveyancing lawyers tend to warn off prospective buyers.
Small print clauses in leaseholds can double ground rent every 10 years