Robert Goodwill is MP for Scarborough and Whitby, and a former Home Office and Education Minister.
We have all been shocked and appalled by reports of homeowners being unfairly targeted by a combination of unscrupulous developers and incompetent solicitors where escalating ground rents have made their dream home unsellable.
The Government has rightly said that “unfair lease terms have no place in the housing market”. Practises such as selling houses on leasehold rather than freehold, applying ground rents that double arbitrarily every few years, and charging pernicious “consent fees” when people want to make simple home improvements, need outlawing and the Government is making good progress in that regard. I applaud Housing Minister, Chris Pincher, for the decisive action he is taking.
But defining what is “unfair” beyond the clear abuses, carried out by a minority of house builders, is less clear-cut. In the escalation of policy responses under successive ministers, some people for whom leasehold and a moderate yearly ground rent is economically beneficial are now at risk of losing out. One such group will be people who want to move into retirement housing, who in many cases will find themselves paying considerably more than they do now.
Anyone that has visited a good retirement housing development will know that a sizeable part of the development is taken up with shared-use areas, typically lounges, offices, and reception areas for the on-site manager, guest rooms, treatment rooms, and in some cases dining facilities. These communal areas, which are a defining characteristic of retirement housing, are a shared resource that come with a cost.
Currently this cost is recouped through a yearly ground rent payment of typically GBP400 each year per apartment, a cost that is always made clear to customers, and to their solicitors, when they choose this particular sort of housing. Without the ground rent, the costs of these areas will need to be recouped by adding between GBP15,000 and GBP18,000 to the purchase price.
Replacing the GBP400 annual ground rent with a hike of GBP15,000 on the purchase price means somebody would have to live in their apartment for 38 years before they were any better off financially. The sad fact is that most people only live in this type of property for 10 years or so. A survey in 2018 found 80 per cent of people would prefer to pay a yearly ground rent of GBP500 rather than a higher purchase price of GBP15,000.
These legitimate views were reflected in the Government’s previous policy of mandating all retirement housebuilders to give customers the option between a yearly ground rent or a higher purchase price. However, the recent decision to abandon this approach and ban ground rents in every circumstance leaves buyers facing a higher purchase price or even an “exit fee”.
An exit fee recoups costs by requiring in some cases as much as 30 per cent of the value of an apartment to be paid back to the retirement development when it comes to be sold. Some who urge the abolition of ground rents in retirement housing point to exit fees as the future, but the fact is an exit fee or a higher purchase price both cost more than a moderate ground rent of the sort already in place.
Take a new retirement apartment in my Scarborough and Whitby constituency which costs GBP200,000 with a ground rent of GBP416 per year. The total cost over ten years including ground rent will be just over GBP204,000. Under the current proposals in the future the same property will cost GBP215,000 with no ground rent, or GBP220,000 if it carries an exit fee of just ten per cent.
There is a clear urgency about act on historic leasehold abuses, but rushing to adopt a crude one-size-fits-all approach to ground rent will push up prices for people choosing to move into safe, age-friendly, supported housing which in many cases keeps them out of costly institutional care. These are precisely the sort of moves Government should be making less costly not more.
Originally found on Conservative Home Read More