Thousands of homeowners are set to receive refunds for expensive ground rent they were charged on leasehold properties.
More than 5,000 people are in line for a payout. It follows action by the Competition and Markets Authority (CMA) to end spiralling ground rent charges.
They will also have ‘unfair’ terms that allow the amount of ground rent they pay to double every 10 years removed from their contracts.
With a leasehold property, homeowners do not own the property outright – unlike a freehold one. They have the right to live in it for a set period, typically between 99 and 125 years.
What’s the difference between leasehold and freehold?
The land on which the property sits continues to be owned by the freeholder. The homeowner has to pay annual rent on it, which is known as ground rent.
But many homeowners have faced sharply increasing annual ground rent charges after housing developers sold the freehold to other companies. This has made it difficult for the occupiers to sell their home or take out a mortgage on it.
Sarah Cardell, Interim Chief Executive of the CMA, said: “For years leaseholders have been plagued by what we believe are unfair practices. That’s why we sought to tackle the problem by launching action against some of the biggest names in the business.”
Why is this happening?
It used to be the case that only flats were typically leasehold. Most people purchasing houses would buy the freehold.
But in recent years, there has been a trend among developers to sell houses on a leasehold basis.
Government research found that leasehold homes were being treated as a steady source of income by the owners of the freehold. Some ground rents doubled every 10 to 15 years.
In fact, homeowners living in leasehold properties were collectively paying £447 million in ground rent every year, according to a study by trade body NAEA Propertymark.
It found that the average person paid £319 in rent annually. A third of homeowners reported that they would no longer be able to afford to live in their property if it increased further.
The situation led the CMA to open an investigation into the issue.
Who does it affect?
The CMA estimates that more than 20,000 households have been helped by its investigation to date.
Many of these people will receive a refund for some of the ground rent they have paid so far.
Plus, the amount they have to pay each year going forward will be reduced to the same amount as when the property was first sold. It won't be allowed to increase over time anymore.
What’s the background?
The move to help existing homeowners with leasehold properties comes after the government banned expensive ground rents.
The ban benefited both new buyers and those extending their lease in England and Wales from June this year.
Expensive ground rents banned from 30 June 2022
The government has also announced plans to give the estimated 4.5 million leasehold homeowners the right to extend their leases to 990 years at zero ground rent.
It will launch an online calculator to help them find out how much it would cost to buy their freehold or extend their lease.
Try the lease extension calculator from The Leasehold Advisory Service.