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Is buying a leasehold house a worthwhile investment for buy-to-let landlords in the UK?

2-minute read

Is buying a leasehold house a worthwhile investment for buy-to-let landlords in the UK?
Mollie Millman

Mollie Millman

4 August 2017

When you’re looking to purchase a buy-to-let property, you may have the opportunity to buy a leasehold house, but how do you know if that’s the right decision?

Developers sell leasehold houses on the basis that they are cheaper, with buyers forced to fork out thousands more to buy the freeholds - which mean they own the house as well as the land that it sits on.

Obviously a cheaper outlay at the beginning of a property investment can be highly appealing to landlords.

However, leasehold houses come with what’s known as ground rent. Ground rent is often an annual charge set at a low fee at the outset, but can double every 10 years. It means they can reach five figures within decades, making the houses unattractive to future buyers and difficult to sell on.

Government plans on leasehold houses

The Government has announced plans ban new build leasehold houses and restrict ground rents to as low as zero.

Leaseholds usually apply to flats, but developers - particularly in the North West - have been increasingly selling houses on these terms.

The government’s communities secretary Sajid Javid said: “It is clear that far too many new houses are being built and sold as leaseholds, exploiting homebuyers with unfair agreements and spiralling ground rents. Enough is enough. These practices are unjust, unnecessary and need to stop.”

Under Government plans, grounds could be reduced so that they relate to real costs incurred, while being fair and transparent.

And the proposed ban on future houses being sold as leaseholds will apply to all houses (apart from a few exceptions where leasehold is still needed, such as houses that have shared services.)

As such, it would seem sensible to wait until after the government’s consultation - which lasts for eight weeks from Tuesday July 25 - before proceeding with the purchase of a leasehold house.

However, if you still wish to buy a leasehold property, or already own one, there are still steps you can take.

What should I do if I already own a leasehold house?

Property litigation solicitor Danielle Clements, of Gorvins Solicitors, explains what landlords need to know and what they are entitled to do.

She says: “With a house, the first thing you must do is check the terms of the lease as this will tell you exactly what the freeholder can and can’t do.

“Under the Leasehold Reform Act you have a right to buy the freehold subject to certain criteria. The First Tier Property Tribunal can decide the price and terms of acquisition if you cannot agree these with the freeholder.

“If the lease requires you to pay service charges, you have a right to see a summary of how the charge has been calculated and spent. It is a criminal offence not to provide you with this.

“If you are unhappy with the level of the charges, you can apply to the First Tier Property Tribunal to determine whether the charges are reasonable or not.”

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