The government has revealed that its promised leasehold reform proposals will soon ban new-build houses being sold using this type of tenure.

It says it will also move to restrict ground rent increases to very low or even zero, all pending an eight-week consultation.

The announcement follows February’s Housing White Paper in which the government said “urgent reform” was needed to leaseholds in the UK.

There are 1.2 million leasehold houses of which 100,000 feature unfair terms but these will be unaffected by the new legislation. Only future leases will be protected from unfair terms.

In the past houses have been sold by developers such as Taylor Wimpey as leasehold, often at reduced cost compared to their freehold counterparts. But they come with greater costs in the long run, the government says.

Examples given to support the new proposals include a family home on which the ground rent will reach £10,000 a year by 2060, making it virtually unsaleable and a homeowner charged £1,500 to make a minor alteration to their home.

The government is also concerned by the practice of developers selling on freeholds and/or ground rents of leasehold houses, leaving owners “in the dark and facing increasing onerous payments,” the White Paper said.

“In particular, ground rents with short review periods and the potential to increase significantly throughout the lease period may not be offering a fair deal.”

Communities Secretary Sajid Javid (pictured, left): “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting home buyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.”

“The government’s plans to ban leaseholds on new-build houses in England is a step in the right direction for fixing our broken housing market,” says Mark Farmer, CEO of property and construction consultancy Cast (pictured, right).

“Leasehold agreements for houses and the subsequent ground rents that are charged, artificially distort a housing market that is already struggling with issues surrounding affordability.

Leasehold reform

“Banning developers from selling new-build houses on leasehold agreements to drive additional revenue may help recover some of the confidence that the public has lost in the sector.

“Without action on this and the parallel housing quality debate there is a real risk of buyers starting to move away from new build stock which would be a disaster for housing supply.”

The government is also to tackle another ugly side of leaseholds – leaseholds with ground rents that feature short review periods which enable the ground rent to be raised over relatively short periods of time. These are to be restricted to that ground rents increases are kept very low, and maybe even effectively zero.

Beth Rudolf, Director of Delivery at The Conveyancing Association: “We look forward to hearing more details on these proposals and hope they will deal with the single biggest loophole, the Commonhold and Leasehold Reform Act, which currently excludes leasehold homeowners from having any protection from unreasonable fees and unreasonable delays when buying, selling or simply improving their property.

“This loophole means that one particular landlord openly continues to charge £300 for a Deed of Covenant when the First Tier Tribunal issued a judgement against them three years ago saying these should only cost £80.”