The UK competition watchdog has opened enforcement action against four of the country’s largest housebuilders, including Barratt Developments and Persimmon Homes, for allegedly ripping off leaseholders in a potential mis-selling scandal.
The Competition and Markets Authority escalated its year-long investigation into the sale of new-build properties using leaseholds by naming Taylor Wimpey and Countryside Properties, along with their two rivals, as targets in its probe.
Despite a pledge from Sajid Javid, then communities secretary, to ban the sale of new-build leasehold homes in 2017, the government has yet to legislate on the issue. Mr Javid said at the time “it’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms”.
Campaigners have accused the government of dragging its heels on the issue. Leaseholders have been lobbying for five years to end the practice, which became known as the “PPI of the housebuilding industry” in reference to the mis-selling of payment protection insurance by banks.
Ministers had failed to grasp the complexity of reforming the leasehold system, said a senior employee at one of the UK’s largest housebuilders.
Robert Jenrick, the housing secretary, promised the government would introduce legislation “to restrict ground rents in new leases to zero and outlaw new leasehold houses” but did not specify when. “Shameful practices of the kind set out by the CMA have no place in our housing market and we are going to put an end to them.”
The CMA said it was “concerned that leasehold homeowners may have been unfairly treated and that buyers may have been misled by developers”, including by signing up to ground rents that doubled every 10 years.
The watchdog has written to the four companies “outlining its concerns and requiring information”. It said its next steps could include securing legal commitments from the developers or taking them to court under consumer protection law.
Campaigners highlighted how thousands of people were trapped in properties they could not sell as a result of provisions inserted by some housebuilders into leasehold contracts that included ground rents that increased exponentially.
Barratt, Taylor Wimpey, Countryside and Persimmon all said they would co-operate with the probe. Shares in the four companies closed down between 4.5 and 7 per cent on Friday, with Barratt the worst hit.
About 4.3m homes in the UK are leasehold properties, according to government data, where homeowners buy the right to occupy the property for a fixed period — often between 90 and 120 years — from the freeholder who owns it outright.
On Friday, the CMA said it believed developers had used “unfair sales tactics” to push buyers towards leasehold properties and misled them over the cost of converting their homes to freehold ownership.
In 2017, Taylor Wimpey set aside £130m to settle disputes over ground rents on leasehold properties ahead of the government ban on the practice. Separately, in May 2019, Liverpool council said it would no longer work with housebuilder Countryside as a result of the leasehold scandal.
Leasehold Knowledge Partnership, a campaign group, estimated last year that about 100,000 homes were locked into contracts in which ground rents doubled every 10 years.
“This was abusive corporate behaviour on a massive scale, and it is utterly shameful that professionals recommended by the . . . housebuilders — solicitors and valuers — went along with it,” the group’s director Sebastian O’Kelly alleged on Friday.
He criticised ministers for not following through on their promise to ban the practice of selling leaseholds on new properties. The government “promised action on ground rents and leasehold houses in 2017 and we are still waiting”, Mr O’Kelly said.
He accused the housebuilders of “ripping off their own customers with predatory ground rents and other games with leasehold tenure, and now the Competition and Markets Authority agrees with us and is taking enforcement action”.
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