The Competition and Markets Authority (CMA) has launched an investigation into four major national developers over concerns buyers were misled when purchasing leasehold properties.
Barratt Developments, Taylor Wimpey, Persimmon Homes and Countryside Properties are being examined by the regulator.
The CMA said it uncovered “troubling evidence” of potentially unfair terms regarding ground rents and potential mis-selling but added its investigation did not mean the named firms were involved in any or all of these practices.
Regarding mis-selling, it is suspected increases in ground rent are not being fully explained to buyers nor are the frequency of these increases.
Also, it will look at unfair contracts terms which mean homeowners have to pay rising ground rents, which in some cases double every 10 years. As the increase is built into contracts, this can cause issues when homeowners come to selling their properties and in obtaining mortgages.
Developers misleading buyers regarding the availability of freehold properties is being looked into, as the CMA said it found evidence that people were told homes on an estate could only be sold as leasehold, before other properties were sold as freehold to different buyers.
Additionally, the regulator found some buyers were misinformed about the costs of converting a leasehold property into a freehold, with it often costing thousands of pounds more than expected a few years later.
The CMA will also investigate unfair sales tactics including short deadlines to complete a sale, which can make buyers feel pressured into purchasing. It said some buyers potentially would not have bought a property if they knew they had more time.
Ground rent increases based on the Retail Price Index (RPI) will be examined alongside the other issues, and the CMA may take action if it finds evidence of unfair practices in relation to this as it is concerned the link between ground rent and RPI is not always effectively explained to buyers.
It will also look at firms who have bought freeholds from developers but continue to use unfair leasehold contract terms.
Andrea Coscelli, CMA chief executive, said: “It is unacceptable for housing developers to mislead or take advantage of homebuyers. That’s why we’ve launched today’s enforcement action.
“Everyone involved in selling leasehold homes should take note: if our investigation demonstrates that there has been mis-selling or unfair contract terms, these will not be tolerated.”
All four property developers said they were aware of the investigation and would fully cooperate with the CMA during the investigation.
Taylor Wimpey said it took the matter “very seriously” and Countryside said it was “committed to resolving this issue” to the satisfaction of its customers.
Barratt Homes said it was committed to putting its customers first.
A spokesperson for Persimmon added: “A proportion of our properties were sold on a leasehold basis in the past. Following consultation with government, stakeholders and customers we took the decision to stop selling leasehold houses where Persimmon owns the land freehold in 2017.
“Any customers of a Persimmon leasehold property in the last six years have been given the right to buy their lease at below market value and many have done so. We look forward to engaging fully with the CMA on this issue as they continue their investigation.”
Shekina is a reporter at Mortgage Solutions. She has over two years experience in the B2B publishing market, with previous industries including the pet, funeral, hospitality, retail and jewellery trades.
Follow her on Twitter at @ShekinaMS