Leasehold Properties: Building Insurance

Question

Asked by

To ask His Majesty’s Government what action they are taking to deliver greater transparency over the commissions paid to freeholders and managing agents by insurance companies when arranging building insurance for leasehold properties; and what action they are taking to deliver greater value for money for leaseholders in this regard.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I declare my interests as set out in the register and the fact that I am a leaseholder.

My Lords, the Government intend to enact reforms to improve the building insurance market for leaseholders by banning commissions on insurance premiums, increasing transparency of information and preventing unjustified legal fees when challenging costs. We are also working with industry to reduce and clarify charges as a matter of priority ahead of reforms coming into force. Our aim is to ensure insurance costs are fairer and more transparent and give more confidence to the leaseholder to challenge costs.

My Lords, leaseholders are often also mortgage payers and are suffering during the cost of living crisis with higher bills for things such as food and energy. What we need in the insurance market is for insurers to treat leaseholders as customers, as they are the ones paying the bills. It is good to hear from the Minister that commissions will be banned, but when will that happen? Will the Minister set out what he and his department can do before any forthcoming legislation? Will either he or the noble Baroness, Lady Scott of Bybrook, agree to meet me and members of the National Leasehold Campaign to discuss the issue and the wider problems leaseholders face? Finally, will he join me in paying tribute to the National Leasehold Campaign for its relentless work in highlighting the problems faced by millions of our fellow citizens?

My Lords, first, I pay tribute to the noble Lord for the work he has done on this subject and for his many years of public service, for his party and his community, as a councillor in Southwark.

We are committed to working with industry to bring down premium increases in the first instance. The Secretary of State has asked the FCA to do whatever it can to press insurance brokers to reduce unreasonable fees ahead of government action to ban managing agents, landlords and freeholders taking commissions when they take out buildings insurance. The Association of British Insurers is planning to launch a scheme for buildings with fire safety issues and very high premiums by summer 2023 at the latest. Ministers will continue to monitor the progress of the scheme and have made it clear that they expect the scheme to be delivered by summer 2023 to provide urgent assistance to affected buildings. I am very happy to meet with the noble Lord and engage with members of the National Leasehold Campaign; I pay tribute to the work it has done.

My Lords, taking commission surreptitiously on insurance premiums is one of the many ways that managing agents, unfortunately, sometimes behave very badly, and that includes exit fees, permission fees and service charges that go up. I think there is now almost universal recognition that we need a regulator for property agents—estate agents, letting agents and managing agents—and that is certainly what the industry itself is asking for. Would the Minister welcome an amendment to the Renters (Reform) Bill or a leasehold reform Bill, when we get it, to introduce a regulator for property agents?

The noble Lord is absolutely right. This Government are committed to promoting fairness and transparency for tenants and homeowners and to making sure that consumers are protected from abuse and poor service. I assure him that we remain determined to drive up professionalism and standards among all property agents, and we continue to work with the industry on improving best practice across the property agent sector.

My Lords, would not the problems referred to by the noble Lord, Lord Kennedy, be largely eliminated if more leaseholders bought the freehold, thereby avoiding the potential of abuse by the current freeholder? Will the promised leasehold reform Bill make it easier for leaseholders to enfranchise, and will it remove some of the obstacles used by unscrupulous freeholders to deny enfranchisement?

My noble friend is absolutely right, and I pay tribute to the work he does on housing. The Government remain determined in their promise better to protect leaseholders and empower them to challenge unreasonable costs, and to make it easier and cheaper for them to extend their lease or buy their freehold. We wish to extend the benefits of freehold ownership to more homeowners, and in line with our manifesto commitments, we will continue leasehold reform within this Parliament. We are working closely with the Law Commission to bring forward game-changing reforms to the system and we thank the commission for all the work it has done in this area to date. However, the Government cannot pre-empt the King’s Speech, which we expect by the autumn, by confirming what will or will not be in future legislation.

My Lords, insurance costs and service charges are rocketing for the group known as non-qualifying leaseholders, who are not eligible for support from the Government to remediate their fire safety issues, which they played absolutely no part in creating. Can the Minister say what the Government are doing to support this group of people, who are facing not only massive bills but mental and physical health problems as a result of the prolonged stress that this is causing?

The noble Baroness is right: premiums have increased, on average, threefold for buildings with identified fire safety issues. The FCA, which regulates brokers and insurers, reported in September 2022 that the insurance premiums increased by 187%—that is completely unacceptable. The Government will ban commissions and press insurance brokers to reduce and clarify charges as a matter of priority ahead of reforms coming into force. However, the Government cannot pre-empt the King’s Speech at this moment; later, I will report back to noble Lords.

My Lords, leaseholders are already reporting that these scandalous commissions are being rebadged as fees. Are we absolutely sure that transparency is enough? Finding out how much you are being ripped off by is not necessarily any consolation. Does the Minister recognise that this is baked into leasehold as a system? The Government themselves know that it is scandalous and want to abolish it—why do they not do so?

I hope that the noble Baroness heard from my previous answers that that is exactly what the Government intend to do.

My Lords, will the Minister approach the Association of British Insurers about the problem faced by first-time buyers, particularly in London? Despite the Thames Barrier, insurers are reluctant to provide protection and provision for young people buying houses quite a way from the Thames. This is going to be a major problem as interest rates rise still further.

Yes, we are very happy to engage on that point regarding first-time buyers looking to buy houses in the London area.