GROUND rents will be banned for new-build leasehold homes saving owners from spiralling costs.
Plans were revealed in the Queen's Speech today, where Her Majesty announced a range of government plans to help homeowners and buyers.
The Queen's Speech marks the official opening of Parliament and sets out the government's agenda for the next 12 months.
Measures to end the practice of ground rents for new leasehold properties will be put into law.
The Queen's Speech also laid out further plans to tackle housing and other issues, including:
- Stronger rights for renters with a plan for "lifetime" deposits
- Modernisation of the planning system and greater building safety regulations
- Student loans for 4 years at any age to retrain or get a degree
- A fresh crackdown on junk food as government pledges war on obesity
- Fines for Facebook and Google if hate stays online
- A ban on gay conversion therapy
New rules will effectively "set future ground rents to zero” in England and Wales.
A leasehold is where a homeowner buys the right to live in the property for a number of years, but doesn't actually own the land the property sits on.
Owners of homes that are leasehold pay a ground rent to the landowner, known as the freeholder.
There is no limit on the amount freeholders can charge in ground rent.
What if I want to buy a leasehold, what should I look out for?
ANDREW Johnson, money expert at Money Advice Service has some tips on what to consider before buying a leasehold.
- Check how many years are left on the lease? You may struggle to get a mortgage on a leasehold property which has less than 70 years to run. A short lease will be a lot more expensive to extend.
- Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your properties saleability in the future.
- Ask how much the ground rent is? This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
- Ask about service charges and other related costs? This generally covers repairs or maintenance to the property including buildings insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
Many leaseholders of new build homes have been caught out by ground rents that quickly jump in costs, sometimes by thousands of pounds.
Some clauses even state that the ground rent can double every decade.
Such clauses have prevented some owners from selling up and mortgage lenders refusing to lend on these properties.
One couple who bought a brand new flat for £117,000 from Taylor Wimpey in 2009 didn't know they had a doubling ground rent clause.
This saw their ground rent rise for the first time this year from £250 to £500, and it can double again every 10 years until 50 years has passed, by which point the rent will be a whopping £8,000 a year.
The Competition and Markets Authority (CMA) has also raised concerns about leasehold home owners having been unfairly treated by housebuilders.
Efforts to tackle the problem were first launched by the government in 2017.
At the time, then Communities Secretary Sajid Javid said that home buyers were being exploited with "unfair agreements and spiralling ground rents".
At the start of this year, Housing Secretary Robert Jenrick promised that ground rents would be scrapped for millions.
He has also promised to give leaseholders the right to extend their leases by up to 999 years but this will not be included in the proposed bill on ground rents.
The Leasehold Reform (Group Rents Bill) will also ensure leaseholders can't be charged ground rent for services that are not tangible.
The bill will also impose fines of up to £5,000 on freeholders that break the law by charging ground rent.
Freeholders will also be prevented from demanding ground rent in future.
The government estimates that there are just over 4million flats and new-build homes in England which are leasehold.
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