Market watchdogs are looking at rip-off charges that some landlords pay when they buy a leasehold home to rent out.
Some buyers are locked into paying costly fees or complicated and unfair contracts, says the government’s Competitions and Mergers Authority (CMA).
An investigation is now underway to probe how leaseholds work after concerns were raised that properties are potentially missold to landlords and other homebuyers.
The CMA explained many buyers are not given the information they need to fully understand their purchase, such as how much ground rent they must pay and how much they must spend to buy out their leaseholder.
In some cases, ground rents double every 10 years and the buyers do not find out the true cost of their contract until several years after a property purchase.
Contract terms are also unfair, says the CMA, leading to some buyers paying excessive fees for administration, service and permission charges – which are payments homeowners must pay managing agents or freeholders before they can carry out property improvements.
In a call for evidence, the CMA is asking developers, freeholders and homebuyers to tell them about their leasehold arrangements, and if the contracts are deemed misleading or unfair, enforcement action could follow.
George Lusty, the CMA’s senior director for consumer enforcement, said: “Buying a home is one of the most expensive and important purchases a person can make. So, it’s essential they fully understand the contract they are signing – including whether they will have to pay more than they bargained for.
“Our investigation will shed light on potential misleading practices and unfair terms to help better protect people buying a home in future.”
Responses are required to be sent to the CMA by 12 July – more information can be found on the CMA web page.