A concerning number of London leaseholders are thinking about selling their homes due to unaffordable ground rents and service fees. According to recent data from Barclays, 13 percent of leaseholders in the capital are considering this drastic step—three times the national average, which sits at just 4 percent. This startling revelation highlights a growing crisis among homeowners who are struggling under the weight of increasing living costs.

Unaffordable Costs

Barclays’ report indicates a grim reality for many in London: only 35 percent of leaseholders find their ground rent and service charge fees manageable. This implies that a whopping 65 percent are finding it tough to cope with these escalating expenses. Furthermore, a mere 13 percent of those surveyed believe they are receiving good value for money from these fees.

The Issue with Transparency

Many leaseholders feel caught off guard by the escalating costs, which tend to rise as their lease agreements mature. In fact, 34 percent admitted that they were unaware of how rapidly these costs would increase at the time of purchase. This lack of transparency has left many feeling trapped and misled.

High Costs Impacting Sales

The survey also revealed that 29 percent of leaseholders are worried they might not be able to sell their homes due to the prohibitive costs associated with ground rents and service charges. With most new build homes in London being sold as leasehold, homeowners find themselves bound to annual ground rents that can double every decade and are also responsible for increasing lease payments.

The Burden of Maintenance and Inflation

On top of ground rent, leaseholders must handle monthly payments for building maintenance, the surrounding area, and building insurance. These costs have surged due to inflation, adding to the financial strain experienced by homeowners during the ongoing cost-of-living crisis. Mark Arnold, Head of Savings and Mortgages at Barclays, notes that high service charges have significantly impacted homeowners, further complicated by rising mortgage and energy bills.

The Risk of Forfeiture

If leaseholders cannot keep up with these payments, they face the severe risk of losing their homes under forfeiture laws. Additionally, high ground rents can obstruct the process of remortgaging or selling a property, as potential buyers must demonstrate their capability to handle these future financial burdens.

Proposed Solutions and Legislative Changes

To address these issues, draft legislation has been proposed that would significantly alter the leasehold landscape:

• Reduction of Ground Rent: Ground rent would be drastically reduced to a nominal “peppercorn rate” of 0.1 percent of the freehold value after leaseholders pay a premium.
• Extended Lease Terms: New legislation would grant an automatic extension of 990 years to leases.
• Ban on New Leasehold Homes: Although new leasehold homes would be prohibited under the new rules, leasehold flats, which make up the majority of leasehold properties in London, would not be banned.

Advice for Prospective Buyers

Arnold advises that potential buyers should inquire about these costs early in the buying process. This isn’t just for peace of mind; lenders also need to ensure that mortgage payments will be feasible alongside other financial obligations.