Property investment platform British Pearl has revealed that ‘ruthless’ developers are cashing in on ‘abusive’ leasehold homes, with prices surging 16 times faster than freeholds ahead of the looming government ban on selling new builds as leasehold.

When analysing Land Registry data, an unsettling picture is painted of developers benefitting greatly from the government’s Help to Buy scheme.

In 2018 so far, the price of leasehold new build houses has grown by 11.7% on last year. The cost of freehold properties, by contrast, is up only 0.7% on 2017.

This year has seen the average sold price of a new leasehold house rise from £251,252 to £280,641, while new freehold houses — excluding flats and maisonettes, for which leases are seen as much more appropriate — have increased from £310,292 to £312,560.

The findings from British Pearl come almost a year after the government announced plans to ban the sale of nearly all new build leasehold homes, which itself came off the back of a leasehold scandal hitting the headlines in April 2017. 

It revealed that thousands of homeowners were left with onerous leasehold deals, where in some cases ground rents would double every decade and freeholds could be bought by third-party firms, in turn making it far more difficult – if not impossible – to sell a home.

On Monday the government launched a six-week consultation into leasehold reform, with proposals for ground rents to be capped at a nominal fee of £10 a year. Other proposed measures included making it easier for leaseholders to form tenant associations by reducing the minimum number of members required in such groups, a crackdown on rogue landlords to offer tenants greater protection and making the process of buying a freehold cheaper and more efficient.

“Unfair ground rents can turn a homeowner’s dream into a nightmare by hitting them in the back pocket, and making their property harder to sell,” Housing Secretary James Brokenshire said when announcing the consultation.

Leasehold house sales have become more commonplace in recent years, with developers standing accused of selling leases so they can eventually increase leasehold charges and leave homeowners vulnerable to exploitation.

Home Secretary Sajid Javid, who was Housing Secretary at the time of the government’s original crackdown on the leasehold scandal, described the practice of selling new build homes as leasehold as ‘unfair and abusive’.

“It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms,” Javid said in December last year.

James Newbery, investment manager at British Pearl, said Britain’s first-time buyers were already hampered by a chronic lack of housing stock. “So for property vultures to take advantage is unforgivable,” he added. “Help To Buy is probably partly to blame, with developers leaping to milk these taxpayer subsidised loans for all they’re worth. They simply jack up the prices of existing stock – knowing buyers facing stiff competition and are capable of paying more.”

“This stores up problems for the future but it may be years before homeowners realise they were taken for a ride. The government needs to legislate as a matter of urgency and ban the sale of houses with leases to protect buyers.”