“Overnight, Nationwide building society has made hundreds, and possibly thousands, of new-build flats and houses almost unsaleable – and they should be roundly applauded for doing so.
In a surprise intervention into the scandal of leasehold flats and houses sold with spiralling ground rents, the society said that from this Thursday it will stop lending against any new-build leasehold flat or house where the ground rent is more than 0.1% of the value of the property. It will also refuse loans on new flats with lease lengths of less than 125 years or new houses with less than 250 years. Developers will now be forced, if other lenders adopt the same policy, to slash the absurd ground rents or find that they simply can’t get any buyers.
Take, for example, Berkeley’s 60-acre development south of Reading called Kennet Island. Prices for the remaining leasehold flats start at £249,950, but when we rang the sales office it told us the ground rent was £350 and would increase with RPI. That’s more than 0.1% of the value of the property – which means buyers won’t now qualify for a Nationwide mortgage. Either Berkeley cuts the ground rent or finds that buyers will melt away, unable to find a loan.
Coming so soon after Taylor Wimpey said it had set aside £130m to compensate buyers caught in the ground rent trap, it’s another small victory in the battle against leasehold abuse.
Robert Stevens of Nationwide said: “As a mutual building society that looks to protect its members, we have decided to make changes to the way we value new-build properties on a leasehold basis. We are doing this to address the practice of using leasehold tenure where this is unnecessary, particularly for new-build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled in order to safeguard our mortgage members.
“Nationwide is taking a proactive, leading position on this issue to address a significant risk facing our members and to challenge what we believe to be poor practice in the new-build market.”
The society is one of the biggest lenders in the UK, and hopefully this will now set a benchmark for other providers to follow.
Remember, we are not talking about service charges here. When leaseholders pay a service charge, at least they get something in return – such as the maintenance of the common parts of the building. When leaseholders pay a ground rent they receive absolutely nothing in return. It is little more than a medieval tax and should have been outlawed decades if not centuries ago. An ugly industry has built up among financiers who snap up leaseholds with ground rents, because in an era of a 0.25% base rate a stream of income guaranteed to go up by RPI – or double every 10 years in some cases – is an extremely valuable commodity.
The big developers reassure unsuspecting young buyers that the 999-year lease is “almost the same as freehold”, but then they sell it on, typically for 15-20 times the ground rent. It’s a lovely little earner for the developers but spells misery for the flat dwellers.
It’s great that Nationwide has set a new benchmark, but we need to go further. There is no reason why a ground rent should be any more than a peppercorn – say £5 a year. That would kill off this grubby trade overnight. Developers who trapped buyers in ground rents that double every 10 years should be forced to buy them out in the way that Taylor Wimpey has agreed to compensate its buyers.
Amazingly, giant builders such as Persimmon are still knocking out new-build estates where houses are being sold as leasehold, for which there can be no justification. Meanwhile, apartments should only be sold on a commonhold, not leasehold, basis. The legal structure is already in place – it just needs political will to force it on the developers.”