Buying a house (and renting)

Imrahil wrote:I feel sorry for people who bought leasehold properties, but I do sometimes wonder how they didn't receive warnings about it before hand. Even back in the 90s my dad was straight up saying 'never remotely consider leasehold" to my big brother. He absoutely drummed it into us.

It wasn't just my dad who warned me off them, but everyone I worked with all said the exact same thing 20 years ago when I was house-hunting. "Don't touch them with a bargepole". Whenever anyone says they're looking to buy a house, it's almost the first response you get from people you know.

I know estate agents can be scummy and persuasive, they often downplay the dangers of it, but still.

In 2021, 21.7% (5.4 million) of households were in a flat, maisonette or apartment, up from 21.0% (4.9 million) in 2011.

https://www.ons.gov.uk/peoplepopulation ... ation-type

Moggy wrote:

In 2021, 21.7% (5.4 million) of households were in a flat, maisonette or apartment, up from 21.0% (4.9 million) in 2011.

https://www.ons.gov.uk/peoplepopulation ... ation-type

If only 5.4million households could have worked with Imrahil.

Imrahil wrote:Yeah, I'm aware leaseholds are a thing Moggy.

Moggy wrote:

Grumpy David wrote:Very relateable problem in the money section of The Telegraph:

‘We bought two flats in Kew but our boys want to live in Hackney – what do we do?’

The mother-of-two recently sold the family home and is renting in the Thames-side village of Barnes with her husband. They have around £2m in a National Savings account earning 3.6pc in interest.

She wants to help them, but she also wants to know whether she and her husband can eventually retire. The two don’t have huge pensions, having cashed in over the years to pay school fees

The Telegraph are obsessed with highlighting the struggles of insanely rich people.

"I can't afford to keep my castle warm!"

"I earn £3m a year, but school fees are crippling me!"

"I have £20m in the bank, so why does my friend have more classic cars than me?"

"I love my private island, but hate getting a boat, why can't I have a helipad?"

"I inherited hundreds of millions from my mother, but my youngest son married a mixed race American!"

Michael Gove is on the cusp of a major shake-up of Britain’s leasehold system that could see ground rents slashed to a peppercorn.

The Levelling Up Secretary’s flagship Leasehold and Freehold Reform Bill will save around four million leaseholders in England and Wales more than £1,000 each.

But at the same time private savers, including pensioners, could see their investments become worthless overnight.

Many large investment companies have bought up ground rents, which Mr Gove has described as “money for nothing”.

However, close to 900,000 freeholds are owned by private individuals. Campaigners warn that incoming reform of Britain’s leasehold system will deprive these people of £48m a year.

Mr Gove told The Sun last week that those lobbying against his reforms were just “shadowy corporations” and “fake campaigners”.

But 72-year-old Roger Morgan is neither. He is a retired maths teacher with 600 freeholds on maisonettes up and down the country.

He began to buy them during the 1990s from developers such as Barratt as a fail-safe investment after property valuations started plummeting and forcing people into negative equity.

The freeholds now pay him a return of around £33,000 a year. If that income were to disappear, he would have to sell his house and rely on the state pension. His teacher’s pension pot is only worth £47,000 after working several different other jobs.

Mr Morgan, who lives in Exeter, said: “I find it extraordinary that you can buy an investment and then the Government can make it null and void. I pay income tax on these earnings. It’s daylight robbery.”

He agrees with Mr Gove that the leasehold system is “medieval”, but said investors like him can’t be expected to keep managing hundreds of freeholds for nothing.

He said: “I will just walk away. I’m constantly helping conveyancing solicitors. People won’t get mortgages if freeholders like me walk away.

“Gove would need to force leaseholders to buy the freeholds. But who is going to do the paperwork? It’s £45 to the Land Registry for every lease transfer.

“I know at least half a dozen people in a 10-mile radius who also took out these investments in the 1990s like me.”

The Government is currently consulting on what will happen to existing ground rents, having already abolished them for new leases. Other options include capping them at a fixed maximum value, at a percentage of property price, at the original lease value or just freezing ground rents at their current value.

‘Negative, unintended consequences’
Nearly one in five (18pc) freeholds – some 896,400 in total – are owned by private individuals, according to data from Mr Gove’s department.

Freeholds generate a cumulative £268m in average yearly ground rent income, which means £48m on average goes to people directly versus companies.

In 2020, the Competition and Markets Authority (CMA) signalled plans to prevent freeholders from doubling leaseholders’ ground rents more than once every 20 years. After the rules came in, thousands of leaseholders became entitled to ground rent refunds.

In Mr Morgan’s case, some of the ground rents he receives are just £5 or even as little as £2.50, he says. “It makes a difference because there’s a lot of them.”

UK pension funds are exposed to Mr Gove’s plans too, according to the Pensions and Lifetime Savings Association.

Last month, the organisation said placing a cap on ground rents could lead to “negative, unintended consequences” including “a shortfall in pension scheme assets” – which, without compensation, could directly impact scheme savers.

Major insurer Aviva manages at least two funds propped up by ground rent income. A £200m fund managed by Time Investments has suspended dealing since November, blaming Mr Gove’s plan to reduce ground rents to a peppercorn.

Some funds have all but fallen apart. Ground Rents Income Fund, managed by Schroders, is currently down 70pc over five years.

Pensions insurer Rothesay Life also has at least £800m of assets invested in ground rent loans, according to its most recent full-year accounts.

Dr Dean Buckner, formerly of the Bank of England, said loans such as this are secured against the value of a stream of ground rent income over a 40-year period.

He added: “Reducing the rental stream to zero or a peppercorn will have a profound impact on the valuation, possibly reducing it to nothing.”

Local authorities, many of which have fallen into grave financial difficulty, also own 14pc of the country’s freeholds.

‘90pc of my family income relies on this’
Alan Tomlinson, 69, from Lancashire, is a director of a family firm which has invested in ground rents since the early 1960s. Over 90pc of the firm’s income is generated from a portfolio of ground rents which he has built up over the years, and which his retirement relies upon.

If rents were reduced to a peppercorn, his company would be left with no assets and his livelihood would disappear overnight.

He said: “Our retirement plans will now be in ruin, and our company will lose £200,000 a year. We thought it was a reasonably risk-free area, unlike investing in the stock market.

“I feel blindsided by the incoming bill. For the past 20 years, I’ve been compiling our retirement plans suddenly to find out in the past few months that the Government is taking that carpet from under our feet.

“I appreciate that parts of leasehold legislation need reform. But to interfere with contracts that have been in place with landlords and tenants for the past 200 years is a step too far.”

Leaseholders call lobby attempts ‘astroturfing’
Campaigners in favour of overhauling the leasehold system have criticised recent attempts made by lobby groups to draw Mr Gove’s attention to potential losers of his reforms.

Pensioners for Ground Rent is one such group which campaigners have called an “astroturf” simply voicing “edge cases”.

A spokesman for the group told The Telegraph it is lobbying for an “adequate offer of compensation” for freeholders if all ground rents are reduced to a peppercorn.

He said: “Thousands of people, many of whom are vulnerable pensioners, have invested in freehold properties in good faith as a means of funding their retirement.

“Leaseholders could also lose vital building management protection, and the general public would end up covering the costs of the inevitable human rights and compensation battles with the Government.”

Harry Scoffin, founder of campaign group Free Leaseholders, said the Pensioners for Ground Rent group was “invoking ‘granny’ and ‘granddad’ to make an emotionally manipulative argument” and “protect predatory investors’ interests”.

He added: “For every pensioner this organisation can find who has supposedly bought into ground rents, we have dozens more who are actually being harmed by these gouging charges.

“Investors have continued to cling to these grubby income streams despite the Government being public for seven years now that they would intervene in existing leasehold contracts and take action on ground rent.”

A Department for Levelling Up, Housing and Communities spokesman said: “The Leasehold and Freehold Reform Bill will make the long-term and necessary changes to improve homeownership for millions of leaseholders across England and Wales.

“We do not think it is fair that many leaseholders face unregulated ground rents for no guaranteed service in return – that is why we have just consulted on a range of options to cap ground rents for existing leases.”

But 72-year-old Roger Morgan is neither. He is a retired maths teacher with 600 freeholds on maisonettes up and down the country.

He began to buy them during the 1990s from developers such as Barratt as a fail-safe investment after property valuations started plummeting and forcing people into negative equity.

The freeholds now pay him a return of around £33,000 a year. If that income were to disappear, he would have to sell his house and rely on the state pension. His teacher’s pension pot is only worth £47,000 after working several different other jobs.

Victor Mildew wrote:Only 47K? The poor thing, he'll probably have to let his cleaner and gardener go next.

poshrule_uk wrote:TBF I read that as he only has £48k in his pension as a whole. I imagine his other pensions are worth a hell of a lot more.