Competition watchdog to take action over mis-selling of leasehold houses

A new report by the Competition and Markets Authority reveals troubling evidence of potential mis-selling of leasehold houses.

Leasehold homeowners trapped in unsellable properties have been given a big boost today, after the competition watchdog announced that it has found ‘troubling evidence of potential mis-selling’.

The Competition and Markets Authority (CMA) has today published an update on its research into the leasehold sector. It says it has found ‘serious issues in leasehold selling’ and is set to launch enforcement action.

Its findings, around escalating ground rents, freehold purchase costs, misleading sales information and unreasonable fees, echo those of a Which? investigation into the leasehold crisis in 2018.

Here, we outline the problems highlighted by the CMA and explain what could be next for leaseholders.

New report slams leasehold mis-selling

A scathing interim report released by the CMA this morning says it has found ‘worrying evidence that people who buy leasehold properties are being misled and taken advantage of’.

Today’s report is the first major update the CMA has released since it launched its investigation in June 2019.

It has split its findings into four key areas:
  • Ground rents: homeowners are being forced pay escalating ground rents, which in some cases can double every 10 years. This increase is built into contracts, meaning people can struggle to sell their properties.
  • Freehold costs: people have been misled about the costs of buying their freehold. Some were told when purchasing the home that the freehold would only cost a small sum, but were later quoted thousands more.
  • Misleading information: buyers weren’t told that their properties were leasehold and developers failed to explain what this means. Buyers found out about the additional charges of leasehold too late to change their minds.
  • Unreasonable fees: homeowners are being charged excessive and disproportionate fees for things like routine maintenance and making home improvements.

CMA set to take action on leasehold mis-selling

These findings will be old news to embattled leaseholders, and echo the problems we highlighted in our investigation back in June 2018.

Since then, the government has sought to ban the selling of leasehold new-build houses with punitive ground rents, but has done little to offer redress to those already trapped.

That’s why today’s report is big news for homeowners, as the watchdog has the power to launch legal action over mis-selling.

The report is only an update on the CMA’s work, but it is striking that it says the ‘serious concerns’ it has uncovered will result in ‘direct enforcement action against companies it believes have broken consumer protection law’.

If the companies in question – which are likely to include developers and conveyancing companies – fail to make the required changes, the CMA can take them to court.

What will change for existing leaseholders?

If and when leaseholders will be able to get redress remains to be seen, but this is certainly the biggest development so far.

Initially, the CMA has recommended that the government reforms the system of redress for leaseholders to make it easier to contest unreasonable permission fees and service charges.

The watchdog says that its investigation into consumer protection law in the sector is still ongoing, so there may be more specific information released in the coming months.

Which? and the leasehold scandal

We’ve been tracking the leasehold scandal for several years and welcome today’s news.

Our coverage of the leasehold scandal – a timeline:

Listen to the leasehold scandal podcast

In August 2019, the Which? Money Podcast covered the leasehold scandal.

We spoke to Clive Betts MP, who led the Housing, Communities and Local Government Select Committee into leasehold reform, and Rob Stevens from the mortgage lender Nationwide about its ban on offering mortgages on houses with punitive ground rent clauses.

 

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