It has found troubling evidence of potential mis-selling and unfair contract terms, and is set to launch enforcement action.
These concerns include homeowners having to pay escalating ground rents, which in some cases can double every 10 years, meaning people can struggle to sell their homes and find themselves trapped.
The CMA has seen evidence that people have been misled about the cost of converting their leasehold to freehold ownership. When buying their home, some people were told the freehold would cost only a small sum, but later down the line this price had increased by thousands of pounds with little to no warning.
Some developers are giving misleading information and not being told upfront that a property is leasehold and what that means. They don’t explain the differences between leasehold and freehold when directly asked, and some actually tell potential buyers there is no difference. By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so.
Unreasonable fees that are excessive and disproportionate are being charged for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it.
Andrea Coscelli, the CMA’s chief executive, said: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.
“We’ll be looking carefully at the problems we’ve found, which include escalating ground rents and misleading information, and will be taking our own enforcement action directly in the sector shortly.”
The CMA is now completing all the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law.
This could result in firms signing legal commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.
Changes to the law
The evidence found by the CMA also supports the case for changes to the law in this area. The CMA will continue to work with the government on its reform plans for the leasehold market, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.
As part of its work, the CMA is developing consumer advice for people who own, or are looking to buy, a leasehold property. This will offer tips on what they can do when faced with permission fees and service charges they consider unjustified.
All information relating to this investigation can be found on the leasehold case page.
Industry approves of CMA action
The industry has reacted positively to the news. Jackie Bennett, director of mortgages at UK Finance, said: “The inappropriate use of leasehold and the detrimental impact it can have on homeowners has been an area of concern for lenders.
“Leasehold is an appropriate tenure in the right circumstances, for example where properties have shared services or are built on land with specific restrictions but it’s crucial it works in the best interest of homebuyers, now and in the future.
“It’s therefore good to see the CMA taking action where unfair practices have been identified.
“This sends a clear signal that the terms of leasehold should be clear and transparent and that leaseholders should be treated fairly.”
Mark Hayward, chief executive at NAEA Propertymark, commented: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly.
“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty.
“Our research shows three in five (62%) leaseholders feel they were mis-sold and therefore it’s vital enforcement action takes place as soon as possible to give some hope to those who are currently trapped with no easy route out.”
Jeremy Raj, national head of residential property at law firm Irwin Mitchell, said: “The authorities need to stop the hand-wringing that has greeted the undoubted abuses that have been perpetrated by some rogue elements within the sector, and take some decisive action to stop them.
“Equally, it is vital that we do not exaggerate either the size of the problem or the ability of millions of leaseholders to live in, and enjoy, their homes.”
