A worrying report published by the Competition and Markets Authority (CMA) suggests that a growing number of leasehold property buyers are being deliberately misled by developers. Many buyers are being subjected to unfair treatment while being charged excessive fees without reasonable justification.
No specific developers or housing companies were named, but the CMA has insisted it intends to take action against those ‘trapping’ unsuspecting buyers with misleading information and false promises.
Specifically, the report from the CMA accuses housing developers of failing to explain what purchasing a leasehold property entails or that the properties they are selling are in fact on leasehold contracts.
Stealth fees and hidden costs
Many of those affected reportedly were not informed ahead of time of additional fees and costs, like regular ground rent payments. By the time the true terms and conditions of the sale became clear, it was too late to pull out without losing vast sums of money.
The CMA investigation found that some property developers doubled their ground rent charges every 10 years, making it difficult or even impossible for leasehold property owners to sell their homes at a later date for an acceptable price.
In an interview with BBC Radio Five Live, CMA representative George Lusty stated that those affected could be entitled to refunds.
“If we can attack and challenge these unfair ground rent terms, then they’re invalid; all the money that was collected on them isn’t valid, and that has to be paid back,” he said.
“We’re going to do everything we can to get people out of these really serious traps they find themselves in.”
“People aren’t able to take mortgages on these properties. They can’t sell them; that’s a terrible outcome and absolutely devastating for the people affected.”
Ultimately, the CMA is pushing for a change in the law, which will make it a legal requirement for property developers to provide clear, complete, and consistent disclosures of the terms and conditions attached to all leasehold contracts.
In addition, ground rents should be reduced to zero, and heavy restrictions should be placed on the sale of new leasehold properties across the board, according to the CMA.
Growing government support
Echoing the concerns of the Competition and Markets Authority, the Ministry of Housing, Communities, and Local Government reaffirmed its commitment to swift and extensive reform for the benefit of buyers.
“In the past two years, the government has taken more action to stop unfair leasehold practices than ever before. This includes reducing ground rents to a peppercorn and banning the sale of new leasehold houses,” it said in a statement.
“But we know more needs to be done to support leaseholders, and the CMA report echoes our commitment to bring forward legislation to reduce ground rents to zero for future leases.”
You would be forgiven for thinking that in this day and age, private landlords would have to have a good reason to evict tenants. For an alarming number of private tenants across the UK, this sadly isn’t the case.
Recently highlighted by a BBC report published following a nationwide survey, landlords across the UK continue to use the controversial ‘section 21’ allowance to evict tenants from their homes.
Specifically, Section 21 of the 1988 Housing Act provides private landlords with the right to evict tenants at the end of their current contract, without any specific reason for doing so. They must simply provide two months’ notice of their “intention to evict,” with the tenants being given no say in the matter.
Section 21 exists primarily to provide landlords with the opportunity to evict problematic tenants or those that have fallen behind on their rent payments. Increasingly, landlords are using the Section 21 clause to evict tenants to subsequently sell or let out their properties at a higher price.
Lives in landlords’ hands
The report from the BBC clearly illustrated the effects Section 21 is having on those affected by the controversial clause. One of them was a young family from Weston-Super-Mare, who, after 12 years of tenancy with a private landlord, were handed two months’ notice.
Despite having never missed a rent payment, the Palmers were informed they would have to leave their home.
Having run into multiple hardships over the past few years, the family now fears it will be left homeless. Redundancy and serious illness took a severe toll on the family’s credit rating, resulting in potential private landlords demanding several months’ rent upfront as security. This is money the family simply doesn’t have, putting them at immediate risk of homelessness when their current landlord’s Section 21 notice is enforced.
Like many other families facing similar scenarios, the Palmers expressed their shock at the extent to which so many lives are in the hands of landlords across the UK.
It’s estimated that last year alone, the so-called “accelerated procedure” for evicting tenants resulted in more than 8,100 repossessions. In all instances, no court hearing was necessary, and the case of the tenants evicted was not heard at a formal legal level.
While some are calling for the rules to be changed to ensure private tenants are given at least six months’ notice prior to no-fault eviction, others believe the system as it exists should be scrapped in its entirety.
Speaking on behalf of the Law Society, Simon Davis directly cited the Section 21 clause as “one of the leading causes of family homelessness in the UK.”
Subsequently, the government has outlined plans to ban no-fault evictions in their entirety in England and Wales. There is currently no specific date as to when the new policy will come into force or the extent of the exclusions that will allow landlords to continue evicting tenants at relatively short notice.
The recent introduction of the General Data Protection Regulation (GDPR) and the Data Protection Act 2018 are apparently having little to no bearing on the personal data security practices of many organisations in the UK. Particularly where insolvency is concerned, practitioners and FCA-authorised firms are still breaching even the most basic and important data protection guidelines.
This week, a joint statement was issued by the FCA, the FSCS, and the Information Commissioner’s Office (ICO) to reaffirm the importance of heightened responsibility when dealing with personal data. The statement outlined apparent widespread data security malpractice, with an emphasis on businesses attempting to unlawfully sell the personal data of their clients to claims management companies (CMCs).
Instances of unlawful personal data sales and distribution (both before and after a firm has gone into administration) are rife, claims the report from the regulators. The statement warns that by distributing personal data without the legal consent of those it concerns, they may be breaching the terms of both the General Data Protection Regulation and the Data Protection Act 2018.
All direct communications carried out by claims management companies could also be a direct violation of the Privacy and Electronic Communications Regulations 2003 (PECR).
The regulators promised to take action against those found to have breached any applicable data protection laws and policies, encouraging those who may be doing so to revisit and reconsider their practices and policies.
A widespread public problem
Meanwhile, the UK’s data protection regulator has come under heavy criticism for failing to sufficiently protect the public from the risks of behaviour advertising, e.g., remarketing or targeted ads, which are ‘systematically’ breaking data protection and privacy laws.
Warnings were issued last summer that the growing AdTech (advertising technology) industry is already out of control, though little action has been taken to turn things around. The Information Commissioner’s Office previously agreed that real-time bidding (RTB) systems used in online advertising may be accessing and using people’s private information unlawfully.
“We have reviewed a number of justifications for the use of legitimate interests as the lawful basis for the processing of personal data in RTB. Our current view is that the justification offered by organisations is insufficient,” commented Simon McDougall, the ICO’s executive director of technology and innovation.
“The Data Protection Impact Assessments we have seen have been generally immature, lack appropriate detail, and do not follow the ICO’s recommended steps to assess the risk to the rights and freedoms of the individual.”
“We will continue to investigate RTB. While it is too soon to speculate on the outcome of that investigation, given our understanding of the lack of maturity in some parts of this industry, we anticipate it may be necessary to take formal regulatory action and will continue to progress our work on that basis.”
It is safe to say that the Conservative Party’s landslide victory in the December general election represented a doomsday scenario for Remainers. For the first time, there is little to no doubt whatsoever that the United Kingdom will indeed leave the European Union at the end of January.
But far from dealing a hammer blow to the UK economy, the result of the general election has benefited some of the country’s most important markets. One of which is the housing sector, which, according to the Royal Institution of Chartered Surveyors (RICS), has experienced an “uplift” since the Conservatives gained a significant majority in the House of Commons.
An unexpected uptick
According to the RICS, sales expectations in London and the south-east of England have risen significantly for the first time in several months. Likewise, interest among new buyers is also on the increase across much of the UK, particularly in the North East of England and Wales.
The same, however, could not be said for Scotland and Northern Ireland, where sales continue to deteriorate on a monthly basis.
The latest figures released by the RICS should give some comfort to those looking to sell up or relocate over the coming months. Following years of relentless uncertainty, the housing market may once again be showing signs of life for the immediate future, at least.
“The signals from the latest RICS survey provide further evidence that the housing market is seeing some benefit from the greater clarity provided by the decisive election outcome,” said Simon Rubinsohn, RICS chief economist.
“Whether the improvement in sentiment can be sustained remains to be seen given that there is so much work to be done over the course of this year in determining the nature of the eventual Brexit deal.”
“However, the sales expectations indicators clearly point to the prospect of a more upbeat trend in transactions emerging, with potential purchasers being more comfortable following through on initial inquiries.”
House price increases are predicted
Elevated buyer interest is being motivated in many regions by significant falls in average house prices. Particularly in London, East Anglia, and the South East of England, home prices have experienced declines over recent months.
RCIS members, however, are now predicting widespread house price increases throughout the rest of 2020. Though once again, the market remains at the mercy of the outcome of Britain’s departure from the European Union at the end of January.
As it is not yet clear whether the Conservative Party will be able to negotiate an acceptable deal with the EU, uncertainty remains as to the future of the UK housing market and its long-term buoyancy.
Both the Tories and the Labour Party have outlined in their respective manifestos how they plan to tackle England’s housing crisis, should they be successful in this month’s election.
For the Conservatives, Boris Johnson has promised to build at least a million homes over the next five years, while introducing new measures to help first-time buyers get on the property ladder.
“We believe in homeownership. We think it’s the right way forward,” he said.
Meanwhile, Jeremy Corbyn has said that Labour is committed to the most extensive affordable housing scheme in more than 50 years, which will see at least 100,000 new council houses built by 2024.
“Many families are in sub-standard accommodation, paying huge amounts of money for it,” said Labour’s Angela Rayner, adding that the Labour Party would take more direct control of affordable housing in the UK.
Along with 100,000 new council houses, Jeremy Corbyn also promised to build a minimum of 50,000 “genuinely affordable homes” each year, which would be made available through local Housing Associations. Prices would also be adjusted on a regional basis across the UK, in accordance with average local incomes.
Labour’s pledge: Which would result in the biggest social housing initiative being implemented since the 1960s, was welcomed by housing charity shelters. However, the Institute for Fiscal Studies warned that if enacted, the new policy could “risk cannibalising what’s going in the private sector”.
Upping the ante for affordable housing
Clearly, a sticking point for votes heading into the December election, affordable housing has become a prime talking point for both primary political parties. Labour in particular has taken its affordable housing promise to the next level, having previously stated in 2017 that 100,000 council houses or housing association homes would be built each year. They have now stepped this up to 150,000 new homes annually.
Labour’s ambitious promise comes at a time of a growing skills shortage in the UK construction sector, making it difficult to see how these 150,000 affordable homes would be built each year. Such a project would call for an extensive programme of training or the recruitment of a small army of construction workers from overseas.
Over with the Conservatives, the Tory Party has stated that, unlike Labour, it would not use public funds to build the promised one million homes over the next five years. Instead, initiatives and incentives would be introduced to motivate the private sector to build more affordable homes across England.
They also spoke of a new programme that would give first-time buyers looking to purchase a property in their area a discount of 30%.
“The Conservatives have always been the party of homeownership, but under a Conservative majority government in 2020 we can and will do even more to ensure everyone can get on and realise their dream of owning their home,” said Mr Johnson.
“At the moment renting a property can also be an uncertain and unsettling business, and the costs of deposits make it harder to move. We are going to fix that.”
Should the Liberal Democrats win at the December election, the party has promised to build 300,000 new homes in England within the next five years, which includes a minimum of 100,000 social homes.
As the first buyer of a new McCarthy & Stone retirement development in Folkestone, you would expect to be offered a great deal. A forward-thinking retiree was offered an ‘early bird’ discount of £3,000 for a one-bedroom flat. This took the total asking price of the flat to £161,950 which by market standards in 2007 was relatively affordable.
Since inheriting the flat in 2015 the buyer’s son has been unable to sell and is now becoming so desperate that he is considering an offer of just £15,000 from a specialist quick home-buying company.
How could a high-quality flat built as recently as 2007 have plummeted in value so aggressively, particularly when considering the average flat price in Folkestone increased by approximately £25,000 during the same period? What happened to this McCarthy & Stone flat?
Poor resale value accusations
With more than 1,200 developments across the UK, McCarthy & Stone is a market-leading developer of retirement flats. Nevertheless, the company has been accused on several occasions of building and selling flats with very low resale values.
The retirement flat in Folkestone was put on the market in 2015 for £143,000. After which, it was reduced in price exponentially over the years, eventually falling to just £59,000. Even at this low price, nobody has expressed any genuine interest in buying.
Far from an issue with the quality of the flat, the main problem appears to be with excessive monthly service charges payable on the flat. A charge that its current owner claims has reached a whopping £562 per month, the equivalent of paying almost £6,750 per year. This could theoretically swallow up the entire state pension of the occupant, simply to cover ground rent and general services.
In the meantime, the flat’s current owner has been forced to cover these charges on behalf of his late father. He has so far handed over approximately £18,000 in monthly charges and has spoken of his genuine fears of bankruptcy. Incredibly, one of the UK’s leading quick home buying services has now offered just £15,000 for the flat, more than 90% less than its original purchase price.
“In total it’s costing me £900 a month to keep. I’ve got my own home to pay for, and you can’t run two houses on a normal wage. It’s been one huge money pit. One of the buy-it-now companies has offered me as little as £15,000 for it. The stress has been so much and to be honest, it’s made me so stroppy and moody, it’s cost me my relationship too,” he told reporters.
No isolated incident
It’s of no consolation to this particular individual but the issue regarding terrible resale values on McCarthy & Stone properties is far from isolated. In the exact same development, a flat that was purchased in April 2010 for £150,000 sold in 2018 for just £75,000. Another with an initial value of £151,000 fetched just £105,000.
One of the two-bedroom McCarthy & Stone properties on the same development is up for sale right now at £45,000, billed as the cheapest property in the whole of Folkestone.
One of the issues causing the enormous depreciation of such properties is comparatively low demand. The flats are exclusively available for couples over the age of 55 or individuals over 60, who may also struggle to qualify for mortgages against such properties. They are beautiful flats at giveaway prices, though are made inaccessible by the excessive monthly service charges and ground rent.
Shortly after building the development, known as Laurel Court, McCarthy & Stone sold the freehold to a company based in the British Virgin Islands. Having initially charged around £350 per month in charges, First Port gradually increased it to more than £500 over the following years.
First Port provided the following statement when contacted by the press:
“Laurel Court is an assisted living development with enhanced communal facilities such as a restaurant, dining room, function room, restaurant kitchen, staff room, sleepover room, and two lifts. This does mean that it requires a more comprehensive level of servicing and the service charge is higher than it would be on a non-assisted living development.”
“We clearly explain our charges to customers and share budgets with them before the final bill is agreed so that we are completely transparent and there are no surprise costs.”
“We know our customers have the peace of mind that day-to-day home maintenance tasks are taken care of, like mowing the lawn, as well as the bigger jobs, like refurbishing the lifts. Having an estates manager and other on-site staff available 24/7 in an assisted living development offers safety and security that is really valued by our residents and their families. Our customers tell us that the quality of life and the sense of community and companionship that comes from living in a communal, managed development has enhanced their lives greatly.”
Likewise, McCarthy & Stone stopped short of accepting any wrongdoing or even offering an apology to those affected:
“The vast majority of our managed properties increase in value on resale. To help improve this further, we launched a new in-house resales operation in 2017 to support our customers and their families when they come to sell their property. We urge anyone seeking to resell their property to use our in-house service.”
“The value of retirement housing is not just financial. Retirement communities help to reduce the burden of maintenance, increase safety and security for the elderly and reduce loneliness. Nine out of 10 of our customers say moving to one of our properties improves their quality of life.” The seller in this instance contacted McCarthy & Stone to request their “in-house service” though was rejected and refused any further assistance.
The businesses started by Grand Designs star Kevin McCloud that once seemed like bullet-proof investment prospects are now headed for liquidation. As a result, those who invested (some heavily) in HAB Land Finance are now facing the prospect of losing every penny.
Named after Mr. McCloud’s Happiness Architecture Beauty brand, HAB Land Finance attracted more than 280 investors and raised a collective £2.4 million at the time of its establishment. The company was founded as a property development project in Winchester and Oxford, but an announcement was made this week that the liquidators have been called in.
Investors had been promised healthy returns of up to 8%; instead, they now face the prospect of being wiped out entirely.
When the company was founded in 2017, Mr. McCloud advertised the investment prospect as having the potential to deliver “triple bottom line returns with progress on energy positivity.” Of the almost 300 investors that helped fund HAB Land Finance, none saw any return on their investment of any kind.
In August this year, a letter was issued to HAB Land Finance’s investors warning that they stand to lose up to 97% of the money they contributed to the venture.
“After final completion of the projects at both Kings Worthy and Cumnor Hill [in Oxford], the net return available to bondholders would be expected to range from £606,000 (the best case) to £69,000 (the worst case), which, in each case, is equivalent to 26 pence and 3 pence for every £1 of bond monies invested,” read an extract from the letter, a copy of which was obtained by the Guardian.
As a result of ongoing financial difficulties and a generally poor outlook, the firm’s board made the regrettable decision to call in the liquidators. One of them, James Bennett, attributed the company’s financial issues to unexpectedly high costs.
“The directors have reported that higher than anticipated design and project management costs, coupled with delays to the delivery of the sites, resulted in the companies experiencing significant liquidity issues,” said Mr. Bennett.
“This has resulted in a considerable loss to mini-bond holders, who largely financed the project,” he added.
Simon Bullock, director of HAB Land, said that the company had ‘no alternative’ than to call in the liquidators.
“With only 22% of the mini-bond holders voting for the resolution and having exhausted all other options, we were left with no alternative but to commence proceedings to put these companies into liquidation,” he said in a statement.
“With respect to the current HAB development sites in Oxfordshire and Winchester, none of the homeowners are directly impacted by this change, although the situation remains fluid and under review,” Mr. Bullock added.
“This has meant that there is, what we hope to be, a temporary pause on the remaining works on the sites.”
Local authorities have since lashed out at HAB Land, accusing the company of failing to deliver a series of promised facilities. According to Winchester City Council, the company promised to build a play area, an orchard, and allotments at Lovedon Fields, Kings Worthy, which have instead been replaced with an unfinished property development.
The story was first covered by the BBC, which reached out to Mr. McCloud directly for comment but has not yet received a reply from Mr. McCloud personally or his company.
The average property rental prices in the United Kingdom have been accelerating at a phenomenal rate over recent years. Now, the results of a new study, published by property website Zoopla, reveal the areas of the UK most affected by skyrocketing home rental prices.
The Zoopla report reveals that the biggest increases in average property rental prices of the past year occurred in Bristol, Leeds, and Nottingham. Meanwhile, the biggest annual reduction in property rental prices was noted in Aberdeen.
Specifically, Zoopla reported that tenants in Nottingham signing new tenancy agreements this year are paying around 5.4% more than they would have in 2018. Both Bristol and Leeds recorded a 4.5% annual increase in inflation that significantly outpaced average UK wage growth for the same time period.
Despite the significant rental property price hikes of recent years, Zoopla stated that it is actually becoming more affordable for tenants to rent homes in the UK. This is partially attributed to more first-time buyers getting on the property ladder, taking at least a little pressure off the property letting market.
In Aberdeen, the average property rental price decrease of 4.1% was attributed to wider economic issues affecting the area. Aberdeen’s economy is closely tied to the oil industry, which has a knock-on effect on both average house prices and monthly rent prices.
Zoopla’s report also showed that property rentals are becoming cheaper in Middlesbrough and Coventry.
London leads with the highest rental costs.
The most recent Family Resources Survey carried out by the government found that around half of 25- to 34-year-olds and three-quarters of 16- to 24-year-olds now live in privately owned rental properties in the UK. The vast majority of rental properties in the United Kingdom are located in London, which is also where average rent prices are the highest by a significant margin.
According to the report from Zoopla, most private tenants in the United Kingdom use approximately a third of their earnings to cover their rent. Private tenants in London, Oxford, Brighton, and Cambridge spend a considerably higher proportion of their earnings on rent, whereas tenants in Stoke, Bradford, and Hull rank at the opposite end of the scale.
Average property rental prices in the UK are up approximately 2% year-on-year, though this is well below the average annual wage increases for UK workers.
UK-wide rental prices are up by an average of 2% in the last year, which is about half the typical level of wage rises.
“Renting is more affordable today than the 10-year average. An increase in first-time buyers, 80% of whom exit the private renting sector to buy, has also moderated rental demand,” reported Zoopla, commenting on the findings of the study.
“Rental affordability varies widely across the country, reflecting the relative strength of local economies.