UK watchdog investigates homebuilders over leasehold contracts

(Reuters) - Britain’s competition regulator on Friday launched an investigation into four of the country’s biggest housebuilders in relation to possible mis-selling of leasehold homes and high ground rents.

FILE PHOTO: Branding is seen on a new Barratt Homes housing development near Warrington, Britain, August 6, 2020. REUTERS/Phil Noble/File Photo

The Competition and Markets Authority (CMA) said it was opening enforcement cases against Barratt Developments BDEV.L, Persimmon Homes PSN.L, Taylor Wimpey TW.L and Countryside Properties CSPC.L.

The watchdog said it had uncovered evidence of potentially unfair terms with regard to ground rents in leasehold contracts and potential mis-selling which may have broken consumer protection law.

“It is unacceptable for housing developers to mislead or take advantage of homebuyers,” Andrea Coscelli, CMA’s chief executive, said in a statement.

Shares of Britain’s biggest housebuilder Barratt fell 1.4% by 0930 GMT, Persimmon lost 1.3% and Taylor Wimpey inched down 0.3%, while Countryside was marginally higher.

The companies all said they were co-operating or engaging with the watchdog, with Taylor Wimpey adding that it would provide further information requested by the CMA in the coming weeks.

“We will be introducing legislation to restrict ground rents in new leases to zero and outlaw new leasehold houses,” said housing minister Robert Jenrick.

“We are also considering the important work of the Law Commission on wider reforms to leasehold such as enfranchisement rights and will be responding in due course,” he said.

Persimmon said in an emailed statement it stopped selling leasehold houses where it owns the freehold in 2017.

“We believe these are known historic issues where companies have already taken corrective action. At this stage we see immaterial risk to earnings or requirement for provision,” said analysts at Credit Suisse.

The CMA said the possible outcomes of its investigation could include court action or legal commitments from companies to change their practices.

It will also investigate certain firms that bought freehold properties from these developers and was sending letters to a number of other developers, encouraging them to review their practices.

Homebuilders in the UK have been battered in recent years by the country’s decision to leave the European Union, while coronavirus restrictions added to those woes.

However, recovery was gathering pace with mortgage lender Nationwide saying this week house prices had leapt to hit an all-time high in August.

Britain gave homebuyers an incentive amid the crisis by cutting a tax for house purchases in July.

Reporting by Yadarisa Shabong and Pushkala Aripaka in Bengaluru; Editing by Amy Caren Daniel and Elaine Hardcastle