Is the lease fee fix just the first of Sajid Javid's renovations?

 
Emma Haslett
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Spurred By Rising Prices, Phoenix Undergoes A New Housing Boom
Malaise over ground rents has enabled some housebuilders to take advantage (Source: Getty)

If glass, steel, and billion-pound deals is the property industry at its sexiest, then ground rents, the charges leaseholders pay to freeholders for the pleasure of living on their land, are at the other end of the scale.

But the charges, which are often bundled together and traded by property companies, are themselves big business: in fact, analysts at Shore Capital have suggested ground rents on new-build homes could net their owners as much as £100m a year.

General malaise over the subject has, in recent years, enabled some housebuilders to take advantage, quietly sneaking changes into contracts meaning instead of doubling at the historical rate of every 25 years, ground rents doubled every 10 years. That meant by the end of a 99-year lease, tenants would have paid 256 times the original ground rent.

Read more: MPs call for an end to the "dominance" of the big housebuilders

Not surprisingly, they complained – and yesterday communities secretary Sajid Javid took action, setting out plans to restrict ground rents, as well as banning leasehold altogether on new-build houses.

The crackdown has been in the offing for some time: in the government’s housing white paper in February, it insisted it was “absolutely determined” to address the issue. In the intervening months, some housebuilders have taken action: in April, for example, Taylor Wimpey set aside £130m to compensate unhappy leaseholders.

Overall the loss from this won’t be catastrophic, but it may mark the end of the government’s mollycoddling of the sector, which has been the beneficiary of desperate policymaking in recent years as politicians tried to quickly stimulate housebuilding.

Read more: Little hope offered for existing leaseholders after Javid's announcement

Shore Capital analysts have dubbed this indulgence “super-normal conditions” – the most “super” of those being the help to buy scheme, which is now responsible for 60 per cent of new homes sold (the majority of which, incidentally, are leasehold).

Their concern is the leasehold review is the beginning of a wider examination of housebuilding which could lead to the end of help to buy. Such a move would have a “significant impact on demand, sales rates, selling prices, free-cash flow and potentially dividends”.

Either way, the end may be nigh for housebuilders’ good times. Here’s hoping, to paraphrase George Osborne, they fixed the roof while the sun was shining.

Read more: Help to buy has built up housebuilders - but it can break them down, too

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