Summer Adjournment

Justin Madders Excerpts

Thursday 20th July 2017 Commons Chamber

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I am pleased that my hon. Friend the Member for Bristol South (Karin Smyth) has taken her rightful place on the Front Bench. I congratulate my hon. Friend the Member for Reading East (Matt Rodda) on his maiden speech. He spoke with great sincerity and knowledge about his constituency and the challenges facing it, particularly pressure on housing and public services.

I wish to raise just one subject—leasehold—which affects not only a number of my constituents, but many other people throughout England and Wales. My hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) has already touched on it. I spoke about it in the Chamber last December, when I described the emerging leasehold scandal as the PPI of the house building industry. However, having seen more of the serial failures, deceptions and obfuscations, I believe I may have understated culpability right across the board. The developers, of course, are public enemy No. 1, but the lenders, the solicitors and even the Government all have to take some share of the blame for a scandal that has the potential to fundamentally destabilise the housing market if it is not tackled soon.

As my hon. Friend the Member for Poplar and Limehouse said, I am now vice-chair of the all-party parliamentary group on leasehold and commonhold reform, which he brilliantly chairs alongside the hon. Member for Worthing West (Sir Peter Bottomley). They have been superbly assisted by the Leasehold Knowledge Partnership in bringing the matter to the attention of parliamentarians. There now seems to be some consensus across the House that these abuses need to be tackled. I understand that the Government will be coming forward shortly with plans to tackle some of the abuses in the leasehold sector, but it is vital that they create not only a clear and fair framework for new builds, but a strategy to deal with the rotten mess that developers have created.

There at last appears to be some self-awareness by developers that leasehold homes are becoming toxic, with many now pledging voluntarily not to sell any new homes on a leasehold basis. But that will not assist my constituents who have already bought their homes and have been quoted extortionate sums to buy their properties, obtain permission to alter the property, or even ask a question of their landlord, nor will it assist the many who are already trapped because they have onerous leases that purchasers are no longer interested in signing up to, and that some building societies will no longer lend on. It will also not assist us in holding to account the guilty men and women who must have known that creating this second lucrative income stream for developers would ultimately be at the cost of their customers.

Developers are beginning to acknowledge their responsibility. Taylor Wimpey voluntarily announced in April that it was going to set up a process whereby those with the most onerous leases had the opportunity to convert them into new leases where the ground rent would increase by only RPI, instead of doubling every 10 years. Sadly, however, that announcement is where the credit stops, because three months on, progress has been painfully slow. In the intervening period, I have been contacted by at least one constituent whose ground rent has doubled since the announcement was made, which means that if it ever does get converted to an RPI lease, those RPI increases will be applied to a ground rent that is twice what it could have been. This has ongoing consequences should my constituent ever be in a position to purchase the freehold outright, and if she does try to purchase it, she will still have to negotiate with the owner of the freehold, whoever that is, and navigate the fiendishly complicated and lengthy process currently in place.

The lease may still contain other punitive clauses aside from the ground rent, which, as we have seen from some examples, can include charges of up to £3,000 just to get permission for an extension. This is all before we consider those who are not covered, such as second-generation purchasers where Taylor Wimpey are not the freehold owners. Where do they stand? There is going to need to be an active Government strategy to deal with everyone affected by this scandal.

The Government have a financial interest in sorting this out. At the end of March 2017 the number of Help to Buy purchases on leasehold properties stood at just over 28,000, of which 11,641 are houses. Some 23% of all Help to Buy purchases are on leasehold properties, and given concerns about the drop in value of some of the properties with the most onerous leases, there is a real question whether the Government will get all their money back eventually. To my astonishment, there has not yet been any suggestion of an outright ban on Help to Buy funds being used to purchase leasehold houses.

Let us be clear: sorting out the immediate consequences of onerous leases must be the start of the process, not the end of it. We need to learn the lessons, and if necessary legislate, so that the worst excesses of capitalism that we have seen here are not allowed to infect our society again. There needs to be a much easier, quicker and cost-effective way, so that people can purchase their freehold outright, and then we need to bring in an outright ban on houses being sold on a leasehold basis.

But there also needs to be a long, hard look at how we got into this position in the first place. I would like there to be a full Select Committee inquiry into how this practice developed. At the moment, we do not even know the extent of it. Developers must be required to give evidence about why this systematic duping of their customers was allowed to start in the first place. Who were the authors of those leases that now nobody will sign up to? How many properties were made leasehold needlessly? How much profit have they made out of this scam? And who exactly are the beneficiaries of the leases now?

These properties are being passed around from one company to another. Some are based outside this country, and there is secrecy about who the ultimate recipients are of the substantial incomes coming from the leases. There is an old saying that an Englishman’s home is his castle, but it now seems that an Englishman’s home is in fact a revenue stream for an offshore company operating from a tax haven.

What is very clear to me is that when people bought their houses they thought they were doing just that—buying a home. What they never contemplated for a moment was that actually the true owner of their home would be someone they might never know the identity of, who can sell on their interest in the property to somebody else without their knowledge or consent. It sounds like something out of feudal society, not 21st-century Britain.

That brings me to what I would like a Select Committee inquiry to look at: the legal profession. Speaking as a former solicitor, I know that mistakes are made, but it seems incredible to me that so many people make the same complaint about the advice they received at the time of their purchase. I surveyed my constituents in leasehold properties and a staggering 80% of them did not know the true nature of what they were buying. I think those figures demonstrate that there is a compelling need for further examination of the advice that was provided. I have heard of developers offering incentives to use particular solicitors. Why would they do that, and what led to such a collective failure in the legal profession?

What advice was given to the lenders, whom solicitors also have a duty to? We now know, for example, that Nationwide will no longer lend on properties with doubling ground rents. That rather raises the question of what their and other lenders’ exposure is and, crucially, why they granted mortgages on these properties in the first place. None of the developers will tell us how many properties they have built with these onerous clauses attached. We need to know the scale of the problem; the stability of the housing market rests on the back of that.

I hope I have demonstrated the range of issues that need to be dealt with in respect of this scandal. A full Select Committee inquiry is the way ahead. This has not happened by accident and we need to know why it started.

Finally, Mr Deputy Speaker, I wish you, all other Members and, in particular, all the staff who work so hard to keep this place running smoothly, a restful and peaceful summer.