Leasehold homes have been around for hundreds of years, but  in the past few months the ground rent scandal has exploded.It has come to light that over the past decade, property developers have sold thousands of leasehold homes with small print that meant ground rents, normally a nominal payment of as little as £1 per year ,made to freeholders, would double every decade.

Around 100,000 home owners are trapped in contracts with spiralling ground rents. There are many more people in leasehold flats, some of which also have doubling ground rents.

Leasehold properties

The problem started earlier this century, when developers started to insert clauses into leasehold contracts where the ground rent was set at £200-£400 a year, doubling every ten years. These days, a typical ground is currently £371. Unsuspecting buyers were frequently told that 999-year leases were “virtually freehold”, but the hidden clauses meant that the ground rent would soon increase to absurd levels. The government suggests a family house could have ground rent of  £10,000 a year by 2060.

Property firms sold on the right to these ground rents to large investors, attracted by the rising income. For some properties, ground rents are set to spiral to £10,000 a year, rendering them unsellable.

What can we do?

Unfortunately, it is not as easy as selling up and being done with the property. These homes become almost unsaleable, because lenders, particularly Nationwide, won’t grant mortgages against homes with suspicious ground rent clauses, while conveyancing solicitors will warn prospective buyers off. When these homes are sold, it is usually at a loss.

There has been an extraordinary escalation in prices for freeholds so buying it back is also a problem. At the time estates were built, buyers were typically told they could buy the freehold for £3,000-£4,000. Most did not. In the years to follow, the developer would sell the freeholds for around £5,000 to £10,000 each, to the many companies keen to buy them for this particular reason. Homeowners are frequently asked for £40,000 or more for their freehold.


Now the government is proposing a complete ban on new houses sold as leasehold, and reducing ground rents to zero as well as cutting ground rents to zero. But  people in existing contracts are not out of the woods yet. The government wants to see more compensation programmes, such as the £130m assistance scheme set up by Taylor Wimpey, although that scheme has been widely condemned as inadequate.