Thousands of ‘home owners’ who’ve bought into the idea of property ownership don’t actually own their own home at all. People who’ve gone down the leasehold route are simply tenants with a mortgage. And, if they rent out their home, they’re landlords, but still not the legal owner of their property.
Lots of them don’t know this yet. By the time they find out it’ll be too late.
Leasehold rather than freehold isn’t an irrelevant, abstract, legal nicety. Many people who’ve purchased a leasehold property will discover that they’ve made an extremely expensive mistake. And there may be no easy way out.
I know this because I am one of those people.
I bought my one bedroom flat from a housing association, Metropolitan Home Ownership (motto ‘Our Help, Your Home’), via an affordable shared ownership scheme specifically aimed at people on a low income. Unfortunately, the ‘ownership’ aspect of ‘shared ownership’ turned out to be misleading. As did the ‘affordable’ aspect of ‘affordable housing’.
Back in 1999, I knew that I was only purchasing a 50% stake in my flat. And I understood that the second 50% would be more expensive. Rather than paying Metropolitan the original value of the flat less my 50% stake, I would have to buy the second share at 50% of whatever the market value of my flat was at that time.
Unfortunately property prices went up much faster than I’d anticipated. It wasn’t long before I couldn’t actually afford to ‘staircase’ (ie. buy the remaining 50%).
Luckily I met my now husband, and moved in with him. I considered selling my flat. But I’d worked in relatively low paid charity jobs most of my life and had very little in the way of pension savings. I decided to keep the flat, purchase the outstanding 50% on a ‘buy to let’ basis, and rent it out. By the time I retired I’d have paid off the mortgage, and could rely on the rental income to top up my small pension.
I was proud to have to acquired, through hard work and a degree of luck, a valuable asset – albeit with a 99-year end date. And I was keen to pay off my mortgage as quickly as I could to achieve financial security and independence.
My latest fixed term mortgage came to an end last year, and my bank’s valuer came round to assess the flat before approving a new mortgage. That’s when the bombshell dropped…
Apparently the value of a property starts to decline dramatically once there are fewer than 80 years remaining on the lease. Louie Burns of The Leasehold Roadshow estimates that property value drops around 8%, overnight, as the 80-year threshold is breached.
But the cost of extending a lease increases exponentially from exactly the same point due to ‘marriage value’ (a step-change in the way lease extension fees payable to the freeholder are calculated).
Lenders are increasingly reluctant to issue mortgages as the number of years left on a lease goes down. It becomes correspondingly harder to sell the property, so the market value declines even if other properties in the same area are increasing in value. If I don’t extend my lease, by the time I die and leave my flat as inheritance it could be practically worthless compared to what I’ve already paid for it. The same applies if I ever need to sell it, say to pay for healthcare as I get older.
But to extend my lease now could cost an estimated £30,000 including legal fees. £30,000 I simply don’t have. And the method for calculating lease extension fees payable to the freeholder means – all things being equal – it gets even more expensive for me every year I delay. Although, by contrast, much more lucrative for my freeholder, the housing association Metropolitan, to whom the premium is paid. I’m down to 78 years now, and counting.
The bottom line… even though I staircased to 100% around 7 years ago, I now have to pay Metropolitan another large chunk of cash (roughly equivalent to what I paid only 21 years ago for the first 50%) just for the property to maintain its current market value. So I don’t own it in any meaningful sense, and it’s definitely not an affordable way for me to buy my flat.
Of course, shared ownership works for some people as ‘a step onto the housing ladder’. If the market value of your property goes up, and you sell on, it’s possible to make a tidy profit towards your next property.
But I assumed – on the basis of the seller’s information pack and the terms of my leasehold contract – that my 50% share was the first step on the ladder, and staircasing towards 100% was the next and final step. I thought I was buying a long-term home for myself, not a short-term speculative investment.
If I’d have known about the 80-year threshold and marriage value back in 1999 I might have decided not to buy this particular flat. At the very least, I’d have planned to staircase and to extend the lease much earlier when it would have been considerably cheaper.
You’d think someone would have mentioned the 80-year threshold and marriage value. But the Solicitors Regulation Authority upheld my solicitors’ claims that they had no duty to inform me about these issues. Which means I can’t sue for compensation. Not that I’d be particularly keen to sue a solicitor in the first place!
Regardless Metropolitan continue to insist my solicitors should have informed me. Which seems disingenuous to say the least.
So it appears there’s no way out.
There is one glimmer of hope on the horizon. The Competition and Markets Authority (CMA) are undertaking an investigation into potential mis-selling of leasehold properties. And they’ve informed me that housing associations aren’t explicitly excluded from their remit. So I’ve submitted my evidence.
I’m hoping housing associations will be held accountable for withholding essential information that would have made ‘genuinely affordable housing’, well, genuinely affordable. And I’m hoping that retrospective legal remedies will be enforced to help people like me who feel swindled by the very organisations we thought existed to make home ownership more than just a distant dream.