Tuesday 25 July 2017

Leasing Houses

OK, we all know what's going on here:
  • every company on the planet from Microsoft downwards is trying to find ways of setting up reliable income streams (rather than just a one-off sales-price)  -  an 'annuity stream' of good quality is highly bankable, and raises the share price.  House-builders are no different
  • anyone signing up for a rising / indexed / variable ground-rent & lease-related charges has a lousy lawyer, and/or is bonkers or stupid (or ought to be discounting the house price heavily)  
  • but caveat emptor can't be the whole story in the real world: people are indeed badly advised / ignorant / bonkers / lazy / irrational etc and - sadly - need to be saved from themselves in some circumstances
  • oh, and May has asked all departments for zero-cost initiatives to be seen to be doing something popular

So - does the C@W crew reckon dodgy leases on houses is one such case where the punter needs protection?  Or is the government meddling where it's not needed, thanks - just Sajid Javid responding to May's call?   

Answers on a postcard below ...



Steven_L said...

I reckon it's a scam, on the shareholders not the house buyers. If these income streams are so valuable for shareholders why are they being flogged off to shadowy overseas small ltd shell companies? Why is there no mention of these companies in the house builders accounts? Why do the house builders accounts remain opaque on the issue?

What'll happen is the house builders will be 'forced' or 'have no choice' but to wing yet more millions to the offshore accounts of the people they sold the leases to to compensate them for the ground rents being forgiven. It's just people in the know skimming.

Electro-Kevin said...

It does impact the buyers, Steven. I was listening to Jeremy Vine and the ground rents/'extension' rates on the leases are often usurious.

People are just trying to buy a home, for goodness sakes.

It makes me worried as a parent.

Graeme said...

I am interested in the rise of part-rent part-buy arrangements. Where you buy a percentage of a freehold and then rent the rest. If you want to extend the amount you own, you do it at the prevailing market price. Meanwhile what is happening to the ground rent? Has anyone here done an assessment of what is going on? It strikes me as a leveraged play against the buyers, or rather partial buyers

Graeme said...

And Bank Underground had a thoroughly researched piece on car finance plans a few weeks ago. Suddenly, the BoE alerts us to a potential personal debt crisis. That might be a blog to follow, although it is totally unofficial of course

Timbo614 said...

The word says it all. Yours, Free of rent/lease/ground rent & any other encumbrances.
I never looked any further, as soon as leasehold was mentioned, I moved on.
Just my opinion of course but this new-build "You can buy the freehold later" is just a scam.

Timbo614 said...

Oh, and should people be protected from their own lack of understanding of freehold/leashold in the world of google. Nope.
Should the lenders & solicitors be taken to task for being in cahoots with the builders? Yes.

Steven_L said...

People are just trying to buy a home, for goodness sakes. It makes me worried as a parent.

Then the scam is working isn't it? Because once the voting public are worried and feel sorry for the 'victims' the politicians can come along and 'save the day' and order the companies to wires hundreds of millions of pounds to the Channel Islands and Grand Cayman.

Google the name of any big listed housebuilder with the words 'leasehold scam' and you will find articles about it. The articles have the name of the company the lease was sold to. The you can go on Companies House Beta and look into it.

Basically there are a handful of people who are each directors of scores of these companies that buy the leases. There is only one ltd company er site so it is small, has accounting exemptions and is opaque. The leases are flipped via these companies to offshore jurisdictions with high secrecy. The house builders do not mention these companies in their accounts (as they are not subsidiaries) nor do they mention what they are doing or how much they are selling the leases for.

Ground rents doubling every 10 years is obviously a scam that hardworkingfirsttimebuyers will not be allowed to suffer. But hundreds of millions in cash will disappear offshore to people that will never be named. I reckon a fair old chunk of our money gets robbed like this by well connected shadowy people. I Pensions liberation being another example.

Steven_L said...

You should be demanding a criminal investigation, not a compensation scheme. The shareholders are being defrauded.

Steven_L said...

And legally speaking, if the courts have rules that tying a consumer into more than a 12 month gym contract is unfair (see OFT v Ashbourne Management Services [2011] EWHC 1237) then a ground rent that doubles every 10 years on a house purchase is also likely to be void under EU consumer law.

But there will be no legal challenge, just watch, instead the house builders managements will meekly start sending bucketloads of cash to compensate the offshore investors they sold the lease contracts to. It'll be spun as they are compensating the consumers of course, but since the contracts were sold onto another commercial entity why would the house builders have to do that unless the contracts are void?

Sebastian Weetabix said...

Anyone who buys a leasehold house (as opposed to a flat) is nuts, but that doesn't mean rent seeking bastards should be allowed to gouge the ground rent up every 2 years. It needs to be stopped.

Apropos the car finance bubble.. I wonder how much of that is people switching out of company cars & taking a monthly car allowance? We offered that to our staff (easier to administer, cheaper for the company, more choice for the staff) and 77 out of 94 eligible people took it over 2 years.

Sebastian Weetabix said...

I should add nearly all went for a PCP deal.

Anonymous said...

The motives of HMG are irrelevant, it's a good thing to put the frighteners on Wimpey and Co. But what the hell were the solicitors doing?

This is yet another example of late Western capitalism, where rather than building a better mousetrap (requires engineering skill and factories) people are concentrating on innovative, tax-efficient mousetrap leasing schemes.

Clumsy said...

I've tried to understand why so many people decide to opt for a car leasing scheme to 'buy' their new car and cannot for the life of me understand why they do. I know it means people are able to buy a brand new car but what's wrong with people buying a slightly older car? I feel guilty for having bought a 2 year-old car (3 years ago) due to the number of scratches it has picked up from other drivers' inability to get in/out of tight parking spaces on our narrow street. We will be keeping it until it starts becoming unreliable.

Nick Drew said...

these days, Clumsy, most cars are pretty well built & that could be a long time

one of the Drew family motors is a 17-year old veh which, touch wood, still goes nicely (and still gives almost exactly the mpg as it ever did - well, according to its own calculations ...)

Anonymous said...

Leasehold is a blatant scam and more or less a relic of the feudal age. I'm against government banning things but leasehold is not something that should be banned, it just shouldn't exist. Obviously not going to happen, people would rather continue to pay doubling ground rents than pay lawyers a few thousand to convert all existing leaseholds into something that is more fair, such as "strata title" which is used in many commonwealth countries.

I don't get what Steven_L is banging on about. The ultimate owners of the house builders are the same as the offshore companies who leaseholds get sold to.

Owning a brand new car is an ego thing, like comparing sizes of one's sexual organ. In the UK, people don't seem to understand that they are paying double (i.e. interest), or they think it is a great deal because they can get the item now instead of saving up. It's different in other countries.

L fairfax said...

The problem is because of our dysfunctional housing market which does not provide enough homes and make people desperate. In countries with a normal housing market like Spain more demand creates more supply (a shame their banks were crooks* and lend to people who couldn't pay it back).
*A friend in Spain has a friend who when they applied for a mortgage was told that they needed a guarantor and suggested the solution - why didn't they guarantee someone else's mortgage and the other person would return the favour. Of course when one had problems they both had problems.

formertory said...

The leasehold scam is just an extension of the various "Help to buy" schemes, designed to keep house prices as high as possible. Anyone who took advice on a mortgage would / should have had a full caveat on the issues and they should dig out their offer letter to check. Legal representatives should have explained to them; dig out the report and check. Surveyors / valuers should have drawn attention to the leasehold in considering their valuation. Dig out the valuation report and check.

Of course, if they didn't get independent advice or legal representation, or didn't read the paperwork, then they're rather in a hole of their own making - which is unfortunate. Their lenders may take a view when it comes to renewing that nice mortgage deal..... after all, if the place is now effectively unsaleable because of the adverse publicity, the lender's security is prejudiced.

This whole leasehold thing on new houses should have been squashed as soon as the builders started talking about it. And if we want more houses built, tax their bloody land banks to encourage them not to hold on the land in anticipation of land values rising.

Dan said...

Actually, buying a new car on a PCP plan is a sane and sensible move, if you don't plan to actually complete the purchase of the vehicle at the end of the PCP. I am doing just this at the moment, paying for a Nissan Qashqai diesel on PCP.

The reasoning here is simple: I do a lot of mileage at just under 30,000 miles per year. A three-year lease on a car takes it to just under 90K, and at this point a modern diesel is still OK. Take that same car to 150K, however, and things will be starting to go wrong.

The diesel particulate filter will need replacing. The engine internals will be wearing; that engine is a 1461 cc turbodiesel with a variable geometry turbocharger. All of the components will be wearing out, and as that engine is quite a new model, I don't know whether expensive bits will break, or whether it will continue just slowly getting more worn out.

I'm betting on something catastrophic going wrong.

I therefore don't want to be the patsy who gets to find out what bits of that engine fail badly with age. I'd rather hand it back at the end of the PCP term and enter a new PCP contract with a new, known-good car.

The daft thing is that this sort of behaviour, with the amount of miles I travel, doesn't even cost much more money; I would spend more or less the same on a secondhand diesel vehicle secondhand then run it into the ground, or rent a new vehicle every 3 years on PCP.

Bill Quango MP said...

A government with no majority can only address matters that are seen to be very popular or that cost bugger all.

Not really a bad thing in the short term. Means all those issues that never get resolved, might actually get resolved.

The divorce imbalance.
Worker's rights on minimal contracts.
Fees for online booking
Fees for paper transactions.
Fees for foreign currency transactions
Ticket pricing on trains.
118 118 rip-off 'shall we put you through? call s cost ##mumble mumble#}
Grandparents rights of adoption.
footpaths and hedgerows
the legal position of electronic signatures.

and lots more. A government of the micro for another year.

Might be quite beneficial.

Steven_L said...

I don't get what Steven_L is banging on about. The ultimate owners of the house builders are the same as the offshore companies who leaseholds get sold to.

Nope, subsidiary companies have to be listed in the annual reports for the big plc housebuilders. Their annual reports are almost silent on the issue and they do not use subsidiary companies to sell the leases on.

with the amount of miles I travel, doesn't even cost much more money; I would spend more or less the same on a secondhand diesel

I do around 20k a year and I worked out getting a new car was the best option too. Very few new car buyers take full advantage of the 3yr/60k warranty for a start But I got a 4 year straight HP through Ford Credit rather than a PCP as it was much less interest. It'll be in positive equity after about 1 year.

You can get such good discounts on new cars now using car brokers like drivethedeal and carfile. Then you get a manufacturers finance contribution on top which means I'm only paying £150 interest over 4 years. At the end of the day there is no cheap way to drive 20k every year.

The best balance between cost, risk, driver appeal, sticking to slippy Aberdeenshire roads and being able to overtake the tractors in tattie season was without doubt a new Fiesta ST on Ford credit.

andrew said...

It is complicated.

There is no large scale discontent re ground rent on flats.

The difference is that the ground rent on these houses seems to increase at 7%pa (or more)

Any deal of this nature is mis-selling as the likely npv of a house with one of these deals could well be negative(!)

I can see the bill landing up somewhere between the seller of the house and the advisors who did not advise that in 50 years time you will be paying 80k pa in ground rent
- after all, they go mental if there is a tree within 10m of the foundations..

If the increase was RPI I would say it would pass without comment.

andrew said...

The other scenario where there would be trouble ahead for the housebuilder would be where the housebuilder introduces the purchaser to their tame solicitor fro use in the purchase ...

... and the buyer did not have the impact of the ground rent pointed out.

(and I would like to think something bad happens to the solicitor as well)

hovis said...

No need for new legislation simply let unfair contracts law apply. People do no want to be molycoddled per se but confusing a level playing field with government "meddling" is where many who would "self identify" as libertarian/right support a unfair balanvce pf power.

Ed said...

Andrew said:
"Any deal of this nature is mis-selling as the likely npv of a house with one of these deals could well be negative(!)"

Surely this is true of any house, leasehold or otherwise? Why would that make it mis-selling?

Steven_L said...

I can see the bill landing up somewhere between the seller of the house and the advisors who did not advise that in 50 years time you will be paying 80k pa in ground rent

You only get one year to complain to the Legal Ombudsman about a solicitor, after that you have to sue. Likewise, you have to sue over an unfair contract term.

But applying political pressure is cheaper and less risky. Housebuilders depend on politicians not to tax their land banks and to give them planning permission. The settlement will be political, and the housebuilders shareholder will pay for it by paying off the shadowy offshore investors they sold the leaseholds without telling their shareholders.

It's already started:


"[Taylor Wimpey] said it would make a provision of £130m “to alter the terms of the doubling lease to materially less expensive ground rent review terms, with the group bearing the financial cost of doing so”.

It appears to be the same picture whichever listed housebuilder you look into. You google their name with "... leasehold scam" and you find the name of the company that the leasehold were being sold to. Typically the directors of these companies will be directors of up to a hundred plus similar companies with very opaque accounts, many dormant. But some have annual returns showing shareholders.

So picking on one I had a look into the web of companies Persimmon use for the freehold / leasehold arrangements. There are a load of companies registered in the UK starting "Adriatic Land ..." such as "Adriatic Land 1 (GR1) Ltd" and they changed their names from "Persimmon ...." at some point and are owned by "Adriatic Land 1 Limited" which is not registered in the UK but in Guernsey.

Persimmons annual reports to shareholders makes no mention of any of these companies. None of them are in the big list of subsidiary companies. The annual report does not state how much income was generated by the sale of these freeholds. In other words, an undisclosed amount of value (and bear in mind a good chunk of the 'value' these companies create comes from planning uplift granted by politicians) has vanished offshore.

As the scandal kicks off there will be calls for more and more cash to be deposited in Guernsey to 'compensate the victims', it's a scam, but not in the way people are saying it is.

Raedwald said...

It could get worse.

The economic life of these timber / plastic homes with their thin brick skins is about 50 years. Services will fail first, then roof. The freehold sites are the only bit worth keeping. Pulling down the shabby remnants and rebuilding in 75 years is a good option for whoever has retained the freehold ...

L fairfax said...

Considering many people in London live in houses built pre 1900, which are still in good nick - that is appalling.

Raedwald said...

L fairfax - those 1900 houses are probably on their 3rd roof covering, 4th rewire and nth boiler. The components still fail, but renewal is relatively cheap and easy - meaning that the 1900 house has a long economic life.

With modern off-site fabrication in which entire bathroom walls come pre-plumbed to be dropped into place, and modular roofs that click together with not a wet trade in sight, and integrated services already incorporated in the building's components, all to minimise on-site labour costs, build time, and to decrease variability and snagging, it is in some cases now quite impossible to renew the plumbing without removing the external brick skin. If renewing components has prohibitive cost and great difficulty, the economic life of the entire house is much reduced. It makes the 'demolish and rebuild' option better than the 'repair' option after a relatively short time.

Well, we all want cheap houses for first time buyers - but it's lower build quality, not lower land values, that is delivering any savings.

L fairfax said...

Thanks for a clear explanation albeit a depressing one. When did this start happening? What age of house can be relied on to last a long time?
I can see this being a scandal in the future - by which time those responsible will be dead.

Anonymous said...

Forget leasehold, there is a new option on the starting line. Rather than buy or lease a property you acquire a licence to occupy. Coming to retirement homes soon.

Specialist retirement housebuilders often quote very low resale values so when the owner moves on without a forwarding address, the families are left with a pittance. So LTO's are a way round this where nothing is owned but rented.

Here is how one describes it

A licence to occupy gives its holder no property rights, just the right to stay as long as they are fit enough to do so, and when they do vacate, they or their estate only get back around 70-75 per cent of the sum they paid for the licence, as the operator will deduct a deferred maintenance, or management fee of 25-30 percent.

Freehold is it no matter which way you dress it up - but watch those covenants on fees.