You are here: Home - Mortgages - Buy To Let - News -

Nationwide to take tough stance on new-build leasehold abuse

Written by: Samantha Partington
Nationwide is poised to change the way it values new-build leasehold properties in a bid to stamp out ‘poor practice in the new-build market’.

The housing market has seen a resurgence in the practice of selling new-build homes on a leasehold basis, rather than freehold, and with it the inclusion of clauses which are harmful to the personal finances of the homeowner and to the value of the property.

Terms written into some leasehold contracts allow for ground rents, paid by the leaseholder to the person who owns the freehold, to double every 10 years. Developers have also been known to sell the freehold to a third party, which can materially affect the value of the property.

To combat these practices Nationwide, from 11 May, will impose a minimum lease term of 125 years for new-build flats and 250 years for new-build houses. It will also place a ban on unfair ground rent hikes.

The move comes just a week after Taylor Wimpey became the first major developer to announce it would set aside £130m to address the issue of homeowners with escalating leasehold arrangements; the term used for multiplying ground rent payments over fixed periods.

Onerous leasehold terms

Robert Stevens, Nationwide’s head of property risk, data and strategy, said: “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.”

The maximum acceptable starting ground rent on all new-build leasehold properties, accepted by Nationwide, will be limited to 0.1% of the property’s value with unreasonable multipliers such as doubling rents every five, 10 or 15 years not allowed.

Escalation should instead be linked to a verified index, such as the Retail Price Index. If the valuer believes the marketability of the property will be severely affected by unreasonable lease terms, they may decline the property, or reflect those terms in the valuation figure they provide to the lender.

Leasehold popularity rises among developers

A report released by HomeOwners Alliance last month highlighted the tenure’s growth. In 1996 some 22% of of new builds were sold as leasehold, which rose to 43% by 2015. In London, 89% of all new housing stock is sold as leasehold. While the increase in leasehold can be attributed partly to the rise in the popularity of purpose-built flats, commonly sold as leasehold, new-build homes are now been sold on this basis, a practice unheard of 20 years ago.

Stevens added: “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.”

Communities secretary Sajid Javid is also working to stamp out the unnecessary and poor use of leaseholds by housebuilders. Addressing attendees of the Home Builders Federation, Javid said it was no longer possible to look the other way. He plans to ensure that new-build homes bought using the government’s Help to Buy equity loan scheme can only be done so under acceptable term. The terms have yet to be announced.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Could you complain about an unarranged overdraft fee and get a refund?

Two thirds of people stung by unarranged overdraft fees received a refund of the costs after complaining to their bank.