Keir Starmer has pledged to build 1.5 million new homes. But if, as expected, most are flats, chances are that very few will want to buy them. Why? Because people are at last waking up to the fact that the leaseholds under which such flats are typically ‘owned’ are almost worthless.
The notion of getting onto the property ladder has a powerful hold on the British psyche. So much so, that it may be some time before anyone accepts the logic of what I am about to argue. The Renters Rights Bill begins its Committee stage tomorrow, with Labour anxious to speed it through. Once that Bill becomes law, I believe it will be the final straw that breaks the leasehold camel’s back. The market for buying flats in England and Wales will wither and die.
Let me explain. People have traditionally scrimped and saved to buy that first flat for two reasons.
The first is security. Renters have always been at the mercy of a landlord suddenly slipping a Section 21 notice under the door, giving them eight weeks to be gone. Or jacking up the rent massively when their one-year tenancy runs out. The new law will remove both these threats. There will be no more fixed term tenancies. And only a small number of reasons you can be evicted, all of which will require a court order. Renting will be more secure than it has ever been.
The second reason for flat buying was always money, of course. If you rented, you were throwing the stuff “down the drain”, month after month. If you bought, you could count – until now – on your equity ratcheting up year by year. When you needed to move on, you could sell the lease on your flat at a nice profit and take the next step up the property ladder.
But flat dwellers can no longer count on selling their leases for a profit – or indeed at all. The Financial Times wrote last month: “Flat prices have underperformed all other property types in the U.K. over the past five years.” The FT blames this on a number of factors. Working from home has enabled people to move away from the cities. Buy-to-let landlords, once big investors in the flats market, are trying to get out – another consequence of ‘renters rights’.
Grenfell has had a huge impact of course, opening our eyes to the truly awful quality of some modern build. Thousands of residential high rises remain without repair, making them un-mortgageable and therefore unsellable.
But the FT piece fails to mention the most damaging factor of all. Tenure. It is slowly dawning on the buyers of flats that they do not actually own anything at all. They have simply bought the right to occupy their properties for a set – and diminishing – number of years. They, just like the short term renters, have landlords. And the leases they have all signed allow those landlords to dip into their pockets at will, with shocking consequences.
There are annual ground rents which are a charge for nothing at all, and which in many cases double every 10 years or rise with RPI. This used not to be a problem, but once the banks got jittery about one aspect of flat security – fire safety – it was inevitable those jitters would spread. Now many lenders have also begun refusing mortgages on flats with doubling or RPI-linked ground rents, so they are unsellable too.
Then there’s the cost of maintenance and repairs. If you rent short term, repairs are the landlord’s responsibility. Most local authorities nowadays back this up with strict licensing schemes and regular property inspections, to make sure properties are in habitable nick.
Leaseholders, on the other hand, must pay for all maintenance and repairs, yet have zero control over what those works cost, the choice of contractor or how the work is carried out. In some cases, it never actually is. Leaseholders also pay for the insurance of a building they don’t own, but don’t get to choose the insurer or control the policy or its cost. And on top of these regular service charges, leaseholders can find themselves lumbered with Section 20 Major Works Orders to repair big ticket items like lifts or chillers, costing each lessee in a building thousands of pounds at a time.
So while the short term renter knows what his or her housing costs are and can budget for them, the leaseholder cannot. One flat buyer after another has put it to me the same way: “When I bought this flat, I never realised I’d be opening my wallet for my landlord to dip into whenever he chooses, for however much he chooses. I have lost control of my bank account.”
And now lenders are waking up to this danger too. How can they be sure, with all these uncontrolled costs, that their borrowers can actually afford the mortgage? Some banks are starting to refuse loans on leaseholds with high and escalating service charges. More unsellable flats!
Two really alarming bits of news on this in just the last few months. First, a couple of my acquaintance decided they wanted to buy a country place and would use their London flat as security for a mortgage. Both in the couple are high earning professionals without children. The perfect customers for any lender, you’d have thought. To their horror their bank’s valuer refused their application, on the grounds their flat was actually worth zero because their service charges were so high.
Then some friends in another supposedly up-market development tried to sell. There were few viewings. But eventually a couple liked the flat and the location. They were about to make an offer, when they discovered the service charges. In desperation, my friends offered to pay the next ten years worth of charges themselves and drop the price of the flat. Even that did not persuade the prospective buyers who pulled out. Several local agents are refusing to handle the building at all.
These are extreme examples, but as a campaigner for leasehold abolition, I have met people up and down the country whose lives have ground to a halt because they cannot sell flats they sunk their life’s savings into. They can’t take new jobs, or marry, or start families, or retire. They are in limbo. And under the terms of their leases, they cannot stop paying whatever costs their landlord demands, for fear of forfeiting their properties altogether. What they have is, after all, just another tenancy agreement. It can be torn up and they can be evicted, without a penny in compensation, with their mortgages still hanging round their necks.
The public are not stupid. They are becoming aware of all these horror stories. So if, as seems likely, most of Keir Starmer’s 1.5 million new homes turn out to be flats, and if there is no fundamental reform of tenure, then he may build them – but will anybody come?
Margaret Rothwell is a pseudonym. The author is a member of the campaign group, Free Leaseholders.
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I can see share of freehold working for smaller properties – just struggle to see how it works for larger properties. The challenges and logistics of getting work agreed would usually require some external management company to assist, but you would still need to select and scrutinise them. I guess they make it work in continental Europe? What you’re essentially getting rid of is just the time limited element of the lease.
Yet the renter’s rights bill could make things worse. A mass exodus of landlords not wanting to get stuck with crap tenents, selling up instead. Hence rental prices rise due to a shortage on the market.
This is a completely unbalanced report.
…the missing balance being?
Those apartments where the ground is owned in common by the residents, who decide and manage repairs, maintenance, service charge, etc.
My understanding is the big property developers don’t want to be ground landlords or get involved in maintenance so a management company is set up and the property deeds transferred to it, which is then controlled by the residents. I had such a flat in 1980.
What an eye-opening article! Thanks to Margaret Rothwell and the DS for this vitally important information.
I wonder if Kneeler’s 1.5 million new homes are really being built for the Third World Mercenary Army to live in rent-free, while Ethnic European taxpayers fund it all, as has been happening in the States, even in places like Maine.
Maine residents in uproar over $13million ‘Taj Mahal’ migrant housing complex where asylum seekers can stay RENT FREE in luxury apartments for two years
Once they get jobs after those two years, they will have to pay only 30% rent, but it’s easier for them to just sit down and never work again, so they pay nothing. Why work when everything will be given to them for free?
I would conjecture that 90% of the observations in this eye-opening article apply solely to Londonistan and its environs.
I dispute your statement. I put my house – freehold on the market in April and within a week I had a buyer – all well and good.
The problem he had was selling his leasehold flat. Six months later due to the intransigence of the management company he had still not sold his flat.
At this point I gave up and sold it to someone else at a reduced price but it took only six weeks from start to completion.
I rented my house out for 10 years and had two lots of tenants that destroyed the furniture and carpets. This together with the expanding regulations applying to landlords made me sell my house. This was on the south coast nowhere near london
You didn’t mention how corrupt many management companies are. They often take kickbacks from building companies when those companies hugely inflate repair costs and they also get kickbacks from insurance companies by buying unnecessarily expensive buildings insurance. I would like to name one such management company in Bournemouth, but I guess that would cause legal problems.
I agree. When I rented out my house the letting agents quoted me £4,500 for repairs to the chimney stack. I hunted around and got it done for£2300.
Following this I moved agents.
If a large proportion of these flats are not ultimately intended for the Calais Yacht Club members then I will be cancelling my Labour membership card.
These high-rise developments are going on in most major towns and cities across the country and the troops may need to be mobilised swiftly.
The MSM are being encouraged to put out the message that Kneel and his pirates are incompetent and in day-to-day terms they are. Lammy is a clown, Rayner is all gob and no brain and Kneel is so divorced from humanity that he puts his foot in it as soon as his lips move. But, they are working to a script so we mustn’t be kidded by their faux buffoonery. So long as they do as they are told they will get paid.
Government taking ownership of these unsellable monstrosities is more than an intended outcome. And what wonders would they do for the balance sheet
Most (but not all) maintenance and repair work is the responsibility of leaseholders or freehold owners, except where elements of some items like common sewers reside within the property, in which case they belong to and must be maintained by the operating company – e.g there is one that passes through my patch which is owned and maintained by Thames Water, at no specific charge for their work (although it’s all totted up on the water charges, in effect). In my case, it serves 12 separate properties, and TW are quiet good at dealing with the odd fault, and do have the right of access to it whenever required.
Oh yes they will! Manchester mayor Andy Burnham has this cracked, He, it’s claimed by rival developers, has facilitated a large number of luxury apartments, built by a favoured developer, with NO affordable content and on the shopping list of Hong Kong Chinese speculators.
https://www.telegraph.co.uk/business/2024/08/17/taxpayer-loans-fuel-chinese-buy-let-boom-andy-burnham/
Head office don’t seem to have noticed, especially Ange.
You think she’d have snapped one up as well?
Very good article. Only one quibble: the public is in fact demonstrably, catastrophically stupid.
Maybe so, but the EAs and solicitors do their best to play down the negatives re service charges and major repairs to the unsuspecting buyer.
The Councils are also to blame for not inspecting the so called major repairs and the Fire Services for not inspecting the safety of the buildings properly.
I expect they’re not going to be for sale to private individuals. They are mainly political window dressing, and also will be used to distribute illegals among the normal population thus further destabilising.
It’s a cunning plan.
I know I will get little sympathy because I knew what I was entering into at the time of the purchase, but the street in which my less than ten years old house is, built by a well known builder, will never be adopted by the council. This is because of the scam being operated by local authorities and the builders. The authority grant planning permission, salivating at the increase in council tax they will receive but then state that they will not adopt the roads or public spaces. I still pay the same amount of council tax as the people in the streets around my road who get their roads maintained, streets lit and grass areas cut, but I have to pay a management fee on top to get this done. The general public are still allowed, by law, to walk and drive on my road and use the grass areas (indeed we have a national footpath crossing our development that we have to maintain, the only stretch that is not maintained at public expense). Fortunately, we the homeowners own the management company so can contain the costs but we have roads and footpaths apparently built to a lower standard than the council would accept if they adopted them but for which they were happy to give planning approval. As I say, it’s just a scam between council and builders
This article is highly irresponsible, full of misinformation and completely devoid of any suggestions to improve anything.
First of all, in many cases the freeholder will be a company owned by the flat owners themselves. Therefore they deal with repairs etc collectively, but have control over them.
Second, there are consultation requirements for major works that Ms Rothwell, or whatever her real name is, failed to mention.
Thirdly, the rapidly escalating ground rent scam mostly related to houses, not flats.
Fourthly, Ms Rothwell completely failed to mention the statutory right to extend the lease, nor the 80 year cutoff for mortgages.
Fifthly, the landlord cannot “dip into [the maintenance fund] whenever he chooses. He can only spend the money on maintenance or running costs eg building insurance.
Sixthly, it is quite bizarre that Ms Rothwell thinks it iniquitous for the freeholder to buy building insurance – this is absolutely needed for a block of flats, just as for a house. The freeholder, by the way, is compelled by law to give the leaseholders details of the insurance policy each year.
The reason why flats are normally leasehold is that there needs to be a mechanism for the flat owners to come together to carry out necessary maintenance – which, yes, includes lifts but also roofs, communal area carpets, external decoration, parking areas and so on. In fact, mortgage lenders will normally not lend on freehold flats for this reason.
Basically the article is well below the standards we expect from the Daily Sceptic and the author needs to wind her neck in.
And most egregiousof all, “What they have is, after all, just another tenancy agreement. It can be torn up and they can be evicted, without a penny in compensation.”
Absolute rubbish. The lease cannot be terminated early by the freeholder, unless the leaseholder breaks the terms of the lease.
“Renting will be more secure than it has ever been.”
Meaning fewer people will want to be landlords.
Wait for the wailing about shortage of rental property.
“Tenure. It is slowly dawning on the buyers of flats that they do not actually own anything at all. They have simply bought the right to occupy their properties for a set – and diminishing – number of years.”
At age 25 (1970s) I bought my first flat – leasehold – and I was well aware of what leasehold meant and that the more years left on the lease meant the flat would be easier to sell on, and get a decent price.
If it is now the case that generally people don’t understand what leasehold means, then we truly have become a nation of dummies.
In the US a lot of apartment blocks are condominiums, that is the ground us owned by the residents in common, and the building managed by residents association. I had such a flat in 1980 and it seems likely that many if not all purpose built flats by property developers in the UK like this.
”The public are not stupid.”
I beg to differ. Were you awake during Covid and are you aware of the current Government?