Protection for Homebuyers

Helen Goodman Excerpts

Thursday 13th December 2018 Westminster Hall

[Kate Green]

I absolutely agree. In fact, my hon. Friend’s constituents have been posting on Facebook about some of their experiences with Persimmon, which echo those of my constituents. She makes an important point about the impact these things have on people’s emotional wellbeing. Some of the homebuyers who have contacted me in recent weeks have talked about being forced to take time off work because of mental health problems created by the stress they are experiencing.

As my hon. Friend said, buying a new house is a life-changing moment for many people. In and of itself, it is a big, emotional, stressful experience and is often accompanied by other big life changes, such as leaving the family home for the first time or an enlargement to the family. It is important to acknowledge that that stress is significant, often lasts for a protracted period of time and is exacerbated by the reluctance of developers to engage with people’s problems.

Despite all that, house purchase is one of the areas of consumer law that is least protected in consumer legislation. Property is exempt from the Sale and Supply of Goods Act 1994, meaning that if it fails to live up to expectations, there is no right to reject it and demand a refund. The role of building control inspectors is to ensure that technical standards are met. They are not responsible for monitoring build quality.

What is more, the person carrying out the work—in other words, the developer—has the choice of which building control body to use to carry out the inspection. A confusing landscape of codes of practice, warranty schemes and even, as was reported on the “Victoria Derbyshire” programme, attempts to gag buyers from going public leave people at the mercy of the developers and warranty companies. All in all, as the HomeOwners Alliance says, people get less protection when buying a house than they do when buying a toaster.

What needs to change? The all-party parliamentary group for excellence in the built environment made a series of recommendations—I know the Minister will be familiar with them—in an extremely well researched and comprehensive report in 2016. Earlier this year, the Government undertook a much-needed public consultation on strengthening rights and protections for homebuyers. I welcome those initiatives, and I am glad the Government have indicated their support for the introduction of a new homes ombudsman, but there is no detail as yet or timescale for implementing that.

In the meantime, the multiplicity of codes, warranties and complaints systems makes things very complicated for homebuyers. The Home Builders Federation told me that it is working on a series of industry-wide reforms, including preparing for the introduction of an ombudsman scheme, a standard sales contract, a single code of practice and a minimum set of warranty standards. It hopes to work with mortgage providers so that compliance would be required for a purchaser to obtain a mortgage. That is all well and good, but I just do not think people will be reassured simply by a voluntary, industry-led approach. The Government need to be much more precise and prescriptive.

The HomeOwners Alliance and the all-party group have called for a number of measures that would significantly help to improve the situation for homebuyers. In her response, I hope the Minister will specifically address them. First, they propose a 2.5% snagging retention so that new-build homebuyers retain 2.5% of the cost of the house, which would be held back for six months, until the end of the defects period, where it would be paid over only if the defects have been corrected. That would create a powerful incentive for builders to sort out problems.

The HomeOwners Alliance and the all-party group propose a right for homebuyers to inspect their new home before moving in, without prejudice and with the right to bring their own surveyor or snagger. Builders selling their properties off plan will often refuse to let buyers inspect the property before they take the keys. That practice is unacceptable and should be ended.

Standardised contracts should include the full plan and specification as standard, rather than them being hidden away in an office. The contracts must include standardised terms and have more detailed specification so that builders cannot swap for cheaper materials. Consumer groups should be involved in the development of those contracts, otherwise the fear is that they will continue to be stacked in favour of the developer.

A focus on quality is much needed across the sector through the adoption of International Organisation for Standardisation standards. A review of the inspection and warranty regimes is required to give consumers reassurance that buildings meet standards set by Government and greater clarity about what is covered. Buyers believe their warranties will protect them for up to 10 years, but after the first two years, warranties typically cover only serious structural defects. Again and again in preparing for this debate, I heard reports of warranty companies refusing to take responsibility for sorting problems.

We also need minimum standards for compliance inspections. A single homebuyers code should replace the many different codes, which are so confusing for homeowners. The new ombudsman, funded by the industry—I think that is the Government’s intention—should be the guardian of the code. It should cover after-sales service as well as the quality of the building work.

Developers should not be able to recommend individual solicitors. That point was raised a few moments ago by my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders). Solicitors should be working for the homebuyer, but if they get most of their business via the developer, that naturally creates a conflict of interest.

[Helen Goodman (Bishop Auckland) (Lab)]

I am pleased that my hon. Friend has secured this debate. Does she not think that it might be an idea for the Law Society to look into the behaviour of solicitors who put themselves in the position of having that serious conflict of interest, which is so detrimental to our constituents?

[Kate Green]

I absolutely agree, and I hope the Law Society will take note of that suggestion.

The final suggestion for improvement and reform is for prospective homebuyers to have more up-front information about the property they are purchasing, including whether properties are leasehold or freehold and the implications of buying leasehold property. We have all heard reports of rip-off service charges and ground rents that rise every year affecting leaseholders in our constituencies. The Government need to act to address that scandal. There should be a standardised key facts document, as there is in financial services, such as for mortgages. Also, better information needs to be handed to the consumer once the property has been completed. I hope that the Minister will respond in detail to those suggestions.

Before I conclude, I should say that no debate in this House right now would be complete without a reference to Brexit. Fundamentally, the problems I have described come down to corporate greed, but they have been exacerbated by pressure to build the new homes needed to meet Government targets, which the construction industry is struggling to cope with. Poor quality workmanship has been attributed in part to being forced to rely on inexperienced, unqualified labour.

The Construction Industry Training Board tells me that, in response to the shortage of skilled workers, many developers are relying on EU workers to fill gaps in their sector, including electricians, carpenters and bricklayers. Those are skilled trades, and investment in upskilling the domestic workforce to meet demand is imperative. However, were we simply to turn off the tap on EU labour, the pressures that the industry faces would only increase.

We are still waiting for the Government’s immigration White Paper, although I was pleased to hear the Leader of the House promise in business questions this morning that we would see it next week. There are particular worries in this sector, not least because of the reliance on self-employed labour, yet there is a real lack of information about how the Government’s post-Brexit immigration system will work for self-employed workers. Will there, for example, be the possibility of third-party sponsorship schemes to enable such skilled tradespeople to continue to come in and provide labour in our construction sector? I urge the Minister to press her Home Office colleagues to ensure that the immigration policy that it introduces meets the needs of this crucial sector.

This House cannot sit by while so many of our constituents face such great cost, stress and disappointment when making such a significant investment. The industry needs to get its house in order, and the Government have a responsibility to ensure that it does so. The Minister must tell us exactly what steps she will take to protect our constituents from seeing their dream home become a nightmare. I look forward to her response.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

It is a pleasure to see you in the Chair this afternoon, Ms Ryan, presiding over the debate. I congratulate my hon. Friend the Member for Stretford and Urmston (Kate Green) both on securing this important debate and on her excellent opening speech, which covered so much ground. I am grateful to the House of Commons Library and to the Leasehold Knowledge Partnership for their briefings. I will focus on two points: leaseholder tenure, which my hon. Friend mentioned, and, briefly, fire sprinklers.

I co-chair the all-party parliamentary group on leasehold and commonhold reform with the hon. Member for Worthing West (Sir Peter Bottomley) and the right hon. Member for Kingston and Surbiton (Sir Edward Davey). It is good to see our inestimable vice-chair, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), in the Chamber.

Governments of both persuasions have recognised that homebuyers are vulnerable to purchasing a property that does not meet their expectations. The Tories legislated in this area in 1986 and 1993, and Labour did more in 2002. Despite incremental increases in protection, the Government recognise that more needs to be done. As a result, the Prime Minister, and successive Secretaries of State and Housing Ministers, have been making promises on ground rents, the conduct of property management companies, the right to manage, dispute resolution and commonhold. We have had various statements—written and oral—a White Paper, calls for evidence and consultations. The Law Commission has been tasked with a major review of the law and is on the case.

The first anomaly comes with the purchase of the property. I say “purchase”, but as the Library briefing makes clear:

“Owners of long leasehold properties do not necessarily appreciate that, although they are owner-occupiers, they are in a landlord and tenant relationship with the freeholder.”

It might not be clearly pointed out by the solicitor acting for the purchaser. As my hon. Friend the Member for Stretford and Urmston mentioned, that is perhaps no surprise when those solicitors are recommended by the selling developer and, it can be reasonably suggested, manage to juggle a conflict of interest that would be beyond most of us.

My constituency of Poplar and Limehouse has the second highest number of leasehold properties in the country, and had the highest number of leasehold sales in 2015. Whereas the Home Builders Federation says that more than 90% of new homebuyers say that they would buy a new-build home again—somewhat contradicted by the nightmare stories articulated by my hon. Friend—a national survey in 2016 conducted by the Leasehold Advisory Service, the Government-funded advisory body known as LEASE, found that 57% of leaseholders regretted buying a leasehold property. That is quite a contrast.

LEASE has come in for quite a bit of criticism for not doing enough for leaseholders. When Mr Gavin Barwell was Housing Minister, he stated that LEASE should be the leaseholders’ champion, but LEASE still has a remit for freeholders and developers. That looks like a conflict of interest, and I would be grateful if the Minister would give her view of where LEASE sits within the legislative framework.

There is no doubt that some leaseholders are perfectly happy with their homes. However, many are not. The duration of leases can be anything from 99 years, 125 years, 250 years or 999 years. That is quite a range. The Library briefing lists a range of potential problems, some of which were mentioned by my hon. Friend. They include high service charges and a lack of transparency over what people are being charged for; freeholders blocking attempts by leaseholders to exercise their right to manage; excessive costs for building insurance; administration charges; applications to extend lease agreements; and event fees.

I was contacted by a group of leaseholders in my constituency only last night, on the Aberfeldy village estate, complaining that their property management company, Rendall and Rittner, had raised service charges in 2016-17 by 12%, and this year by 6% in a new estate. Residents are also complaining about the poor service for the significant charges that they are paying—nearly £3,000 per year. The Leasehold Knowledge Partnership, the campaigning charity in this area, and the all-party parliamentary group secretariat, run by Martin Boyd and Sebastian O’Kelly, ably assisted by Ms Katherine O’Riordan, have been lobbying the Government on those matters for years.

One of their notable successes early on was getting the Department for Communities and Local Government—now the Ministry of Housing, Communities and Local Government—to revise the figures for leasehold properties. The Department was working on the basis of 2.3 million properties for a number of years. LKP persuaded it eventually that there were many more, and the Ministry now uses the figure of 4.3 million. However, LKP calculates that there are more than 6 million such properties, and the all-party parliamentary group knows which figures we think are likely to be more accurate.

The Select Committee on Housing, Communities and Local Government is in the middle of an inquiry, the conclusions and recommendations of which are keenly anticipated by the sector. There is strong pressure to regulate the sector in respect of property management companies. Some are trying to do a professional job and are observing their own voluntary standards in the meantime—many are members of the Association of Residential Managing Agents. However, many others need regulation that requires them to perform to professional standards. Lord Best has been leading a working group developing a regulatory regime, which the Government have committed to introduce.

[Helen Goodman]

Does my hon. Friend not agree that it sounds as though there has been some serious mis-selling, and the Minister ought to refer it to the Financial Conduct Authority?

--- Later in debate ---

[Melanie Onn (Great Grimsby) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I thank my hon. Friend the Member for Stretford and Urmston (Kate Green) for securing this important debate. I commend the exceptional and knowledgeable contribution that she made in opening the debate, which has taken us far beyond the debate’s title. The contributions have been wide and varied, but they all fall within the subject of justice and fairness for people buying their own homes.

If we are to end the housing crisis, we need to build hundreds of thousands of new homes every year, but what is sometimes lost in a number-focused, target-based approach to house building is the issue of quality. The desire or requirement to complete at speed overshadows the checks and details that people buying brand-new homes expect to have within the system of sign-off before properties are exchanged. Unfortunately, far too many new homes fail to live up to the standards that homebuyers should be able to take for granted.

A YouGov survey commissioned by Shelter found that almost all homeowners of recent new builds experienced some problems when moving in, with more than half of new homes having major faults. As a consequence, there is a crisis of confidence in the quality of new homes, with only two in 10 people thinking that new homes were built to a higher standard than old ones, and only three in 10 preferring to live in a new home rather than an old one.

My hon. Friend the Member for Stretford and Urmston made some alarming statements in her contribution. There was a higher level of danger in some new homes because of poorly installed heating or electrics; a lack of security when front doors did not close; and a public health risk when drainage from bathroom facilities was not properly fitted. We surely cannot consider that acceptable in this day and age, so there is a clear quality problem within some new homes. The worst of it is that homeowners experiencing difficulties suddenly find that they have limited protections and guarantees regarding their new home’s standard.

All political parties accept the need to significantly increase house building output in this country, and that brings with it an urgent need for a more accountable system to check on new builds and restore confidence that buying a new home does not come with a Pandora’s box of problems and headaches for owners. That includes the issue of leasehold, which my hon. Friends the Members for Poplar and Limehouse (Jim Fitzpatrick), for Washington and Sunderland West (Mrs Hodgson) and for Ellesmere Port and Neston (Justin Madders) dealt with in great detail. My hon. Friend the Member for Poplar and Limehouse said that the Government recognise that there are gaps and failings in legislation relating to leaseholders, but no concrete action has yet been taken. I am sure he feels the Government owe it to his constituents to get it sorted.

My hon. Friend the Member for Washington and Sunderland West talked about the lack of information about leaseholds. There is a real lack of knowledge and understanding, so perhaps the Minister will set out what she is doing to make sure that people are aware of their situation when they buy a home. Clear, concise information is needed. When people buy a new home, the amount of information they are sent is enormous, so how can we make sure that leasehold information is at the top of their list of concerns and is addressed and explained properly? My hon. Friend also highlighted the purchase of freeholds. The price is often set far out of the reach of individuals, or the freehold is sold to third parties.

There is also the issue of rip-off fees charged by freeholders. The Minister has overseen changes to rip-off fees in the rental sector to some extent. She took on board many of my comments in the Tenant Fees Bill Committee, and I thank her for that, but when will she take further action? If rip-off fees are not acceptable in the rental sector, we cannot say that they are acceptable in the home ownership sector.

My hon. Friend the Member for Ellesmere Port and Neston talked about the rip-offs around ground rents rising to extortionate levels, making homes unmortgageable and unsellable. He described the valiant efforts of his constituent, Katie, who led a campaign on behalf of leaseholders around the country to highlight that scandal in all our minds. There is an opportunity to take retrospective action, but the Government have been reluctant to talk about it. I have no doubt there are complications, but, as my hon. Friend said, this matter is the PPI of the homebuying and leasehold sector. If we can take action on PPI contracts, why can we not take action on those leasehold contracts?

The creation of a new homes ombudsman is welcome news for consumers, but when can we expect to see that ombudsman in action? Precisely what powers will they have? The Government must press ahead with greater enthusiasm to give homebuyers the sense of security they need when buying a new-build home. Despite a home being the most expensive and important purchase that most of us will ever make, homebuyers too often do not enjoy the same protections that we enjoy when we buy even the most basic everyday goods and services. If somebody bought a book with missing pages, a box of chocolates with their fillings missing or a TV that did not produce a picture, they would be able simply to return the product for a refund or a replacement. But when it comes to a new house, consumers are left to navigate a complex and inadequate warranty system, the whims of developers and the small print of warranty providers. When problems arise, new homebuyers have to go through toil and stress simply to get what they paid for and what they should rightfully be entitled to as consumers.

My hon. Friend the Member for Kingston upon Hull North (Diana Johnson)—a democratically elected Member of this House who is of some civic standing—said it took her five years to get a meeting with a developer. Developers must understand the potential for embarrassment when being held to account publicly in this place. It should not take a Member of Parliament to have to address this matter. It should be simple and straightforward for an individual to get action from developers, and it certainly should not take my hon. Friend five years to get an audience with these incredibly important people in the developer sector.

[Helen Goodman]

My hon. Friend on the Front Bench is making a strong speech. Does she not agree that the large number of cases presented today and previously shows that the situation is not accidental? We are talking not about one or two mistakes, but about a deliberate strategy by the developers to set things up so that they have all the cards and the homeowner has no rights.

[Melanie Onn]

My hon. Friend is right. Some of the dismissive responses from some developers have been mentioned in the debate: “Have you been doing this?” “Well, yes.” “Has it previously been to the disadvantage of leaseholders?” “Well, yes.” “Have you been able to do anything about it?” “Perhaps, but it is only now that we are prepared to do it.” It just goes to show that highlighting such things and putting pressure on the companies can have a swift effect, not least if they want to save their reputational skins.

It is not acceptable that people have to put up with major problems with their home or delay moving in, or even that they have to move out during belated repairs to bring the house up to scratch. The Government should bring forward a full suite of consumer rights for homebuyers when they introduce the measure on the new homes ombudsman. However, when more than half of new homes are built with major problems, it is clear that problems in providing protection and standards to homebuyers run deeper than consumer rights. There are clear failings across the house building sector, allowing homes to be built systematically in a way that quite clearly falls below the standard that anyone should expect.

That was highlighted well by my hon. Friend the Member for Blaydon (Liz Twist), when she talked about unfinished estates and issues of completion, adoption and delays. She mentioned people living for too long on building sites when there are delays in completing properties, as well as lack of transport and infrastructure, and the failure to provide basic amenities such as shops, play areas and community centres—the things that build a community. Instead, estates are left full of Lego houses, with no centre or heart.

We have a planning permission bidding system with too much flexibility on both affordable housing and standards of building, and bidders can see the building of a home to a high standard as a costly extra. Too often, they fail to recognise that they are not simply building houses; they are building communities, which confers on them a corporate ethical responsibility. They should take pride in the work they do, the homes they provide, and the communities they are building around the country. It sticks in the craw when large companies exploit the system and fail to live up to their moral duty to deliver affordable housing of an acceptable standard, but still pay uncomfortably high bonuses—despite benefiting from the Government Help to Buy system.

We have already heard about Persimmon’s horrendous customer service. My hon. Friend the Member for Kingston upon Hull North may be surprised to learn that it gets three out of five stars for customer satisfaction. Perhaps she would think that that rates it rather too highly. It will no doubt be disappointed that it is not getting five stars in the HBF customer satisfaction ratings, but rather than concentrating on improving building standards or communication with customers, it insists on paying out £75 million in bonuses to its executives. That is alarming.

Last year, I met the new bosses of Bovis Homes, another company that was struggling to meet acceptable standards, because of a combination of over-expansion, too much subcontracting and being too distant from customers. For a long time it had a five-star building rating, of which it was incredibly proud, but it lost it. It was heartening for me—and it did not take me five years to get a meeting—to hear that Bovis bosses were determined to turn things around. They were quite crestfallen that the company’s reputation had been hit so hard. They had been known as a high-quality, trusted home building brand. Customers were pleased at the change of heart, but there were those who had hoped to move into their dream-forever home for whom the game change was too little, too late.

The need to build hundreds of thousands of homes a year should not lead to reduced standards in house building or allow companies to exploit the housing crisis by making a fortune from an under-regulated housing system. The Government should consider the call from the Federation of Master Builders for a licence to practise, to root out cowboy builders who forgo the rules during construction.

My hon. Friend the Member for Stretford and Urmston talked about a single homebuyers code, developers not being able to insist on particular solicitors to be used by homebuyers—who would have a free choice—and an information pack post-sale. She also highlighted the issue of training for subcontracted staff, and looked forward to high-quality apprenticeships in the building sector. Those are issues that it is well worth considering.

My hon. Friend the Member for Poplar and Limehouse talked about safety and retrofitting sprinklers, and that should not be forgotten. The issue is not just about houses; it is also about flats, of course. When we think about high-rises, the Grenfell tragedy and its effects should not soon be forgotten if we want citizens to be safe.

I hope that the Government will take seriously what has been said in the debate, which was a good and helpful one. I hope they will seek to tighten regulation of planning standards and materials quality, and ensure that the homes we build are safe and up to scratch. Like the HomeOwners Alliance, the Government should want better new build, and should take much stronger action, including retrospective action for leaseholders.

--- Later in debate ---

[Mrs Wheeler]

Or pink—yes, please—or green; we could have green pepper as well. This poor Hansard writer, dearie me.

I recognise that many freeholders have to pay charges toward the maintenance and upkeep of communal areas on an estate. That is especially prevalent on new estates, exactly as the hon. Member for Blaydon mentioned. Freeholders who are unhappy about the transparency of those charges are becoming an increasingly frequent part of my ministerial postbag, and I understand why they are unhappy. Leaseholders have a whole suite of protections and rights that enable them to hold management companies to account, but freeholders have no such equivalent, even though they may be paying for the same or similar services.

The Government agree that the current situation is unfair to freeholders, and we are committed to legislating to plug that gap. We have set out our proposed approach to implementing those measures in part 4 of the recent leasehold reform consultation, which closed on 26 November. We intend to create a new statutory regime for freeholders, based on the rights enjoyed by leaseholders, which will ensure that maintenance charges must be reasonably incurred and services provided of an acceptable standard, and include a right to challenge the reasonableness of charges at the property tribunal.

[Helen Goodman]

The Minister is being generous in giving way. I do not know whether she noticed my ten-minute rule Bill on that precise point, but when she brings forward the legislation or proposals on freeholders, would she consider capping the charges and making it possible for the freeholders to buy and self-manage the common areas, which, as she knows, are being sold on and on and on to a series of exploitative management agents?

[Mrs Wheeler]

The hon. Lady poses a number of questions, all of which are very interesting. I will reread Hansard after the debate and take on board what I can.

The Government agree that the situation is unfair, so we intend to introduce a new statutory regime and are considering whether freeholders should have a right to change the provider of maintenance services by applying to the tribunal for appointment of a new manager, which may be useful if a freeholder is dissatisfied with the service they are receiving. As it happens, my officials are now analysing the responses and the Government intend to bring forward legislation to implement changes as soon as parliamentary time allows.

We move on to another area in this vast debate, home buying and selling. Around 1 million homes are bought and sold in England each year, but another 25% to 33% of planned sales fall through, costing consumers around £270 million and creating stress for far too many people. The Government published our response to the home buying and selling call for evidence in April 2018, setting out an ambitious programme of action to make the buying and selling process in England cheaper, faster and less stressful, in line with our manifesto commitment. There is no silver bullet that can change everything at a stroke and fix the process. Instead, we will need to make a number of practical changes, some big, some small, which taken together will make the experience much better. To put hon. Members’ minds at rest, we as a Government are here to tackle those issues.

We have already started work. We have created a new working group focusing on the regulation of property agents, chaired by Lord Best. We have begun working with industry and the National Trading Standards estate agency team to develop guidance on making referral fees more transparent and to look at the case for banning them. We have also doubled the funding available to that team. We have written to all local authorities reminding them of the Government’s ambition to have a property search request completed within 10 working days. We have consulted in implementing reforms to the leasehold system, seeking views on fixed timeframes and maximum fees for freeholders and managing agents to provide leasehold information.

We have held workshops with industry to develop detailed and thorough how-to-buy and how-to-sell guides to inform consumers, to be published in 2019. We have started work with industry and consumers to make conveyancing data more transparent so that buyers and sellers can make a more informed choice and we have worked with industry to develop a standardised reservation agreement. We will commission behavioural insight analysis to support its implementation; it will increase commitment between buyers and sellers much earlier in the process. Together, our reforms will create a much better process, which guides buyers and sellers and gives them the information they need at the time they need it, allowing them to make the biggest purchase of their lives with confidence.

I confirm to the hon. Member for Poplar and Limehouse that I will write to him regarding cladding and sprinklers. My hon. Friend the Member for Worthing West kindly brought up the question of VAT on service charges. As he will know, that is a matter for Her Majesty’s Treasury, but it is something that has only recently raised its head, so I will write to him about that.

On bonuses for those larger businesses, we announced in August that we are helping to improve shareholder scrutiny of executive pay, strengthen the employee voice in boardrooms and build confidence in how large companies are run. Under those reforms, all quoted companies will be required to disclose and explain annually the rationale for the chief executive’s pay and the ratio to the average pay of their UK employees. The new reforms will provide greater transparency on the impact of share growth and executive pay.

The Government have been clear that this should be a country that works for everyone. That means building more of the right homes in the right places and ensuring the housing market works for all parts of our community. We must ensure that ordinary people purchasing a new home have the protection they deserve and are treated fairly.