Ground rents to be capped at £250 under leasehold shake-up

Ground rents will be capped at £250-a-year in England and Wales as part of sweeping changes to the leasehold system announced by the Government.

New leasehold flats will be banned and existing leaseholders will get the right to switch to commonhold in a bid to give homeowners greater control over their properties under the reforms.

Making the major announcement in a video posted on TikTok, Prime Minister Sir Keir Starmer said: “I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds.

“That’s really important because the cost of living is the single most important thing across the country.”

It comes after backbenchers including former deputy prime minister Angela Rayner urged the Government to stick to Labour’s manifesto promise to tackle “unregulated and unaffordable ground rent charges” amid concerns the move could impact pension funds.

Writing in the Guardian earlier this month, she said ministers were “subjected to furious lobbying from wealthy investors” trying to water down the commitment and warned people may lose faith if the party could not fix the “obvious injustice” with a cap.

Labour MPs have also previously urged ministers to go further than ending new leasehold flats by scrapping the system entirely.

Housing Secretary Steve Reed said the Government is committed to “a comprehensive reform of leasehold so that we can abolish it” as he faced questions from broadcasters about the changes.

Asked what the timeframe would be for achieving this, he told Sky News ministers would “be able to announce that when we announce the results of the consultation”.

Under the reforms, which are included in draft legislation published on Tuesday, ground rents will eventually be reduced effectively to zero after a 40-year transition period.

The Residential Freehold Association (RFA) – the trade body representing professional freeholders – said the ground rent cap is “wholly unjustified” and warned over the impact on the UK’s reputation for investors.

A spokesperson for the RFA said the cap “would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector”.

They said: “Instead of focusing on those reforms which address the issues that leaseholders care most about, the Government’s draft Bill will tear up long-established contracts and property rights, which are pillars of the UK’s investment reputation.“This is despite the previous government’s own impact assessment showing compensation could exceed £27 billion.

“The resulting forced exit of professional freeholders from the sector will hinder building safety projects and disrupt the day-to-day lives of residents.”

There are around 3.8 million leasehold properties with a ground rent obligation across England and Wales, which see people own the right to occupy a property through a lease for a limited number of years from a freeholder.

Unlike a service charge, there is no requirement for freehold owners to provide a service in return for this payment.

The Government estimates about 770,000 to 900,000 leaseholders pay more than £250 a year, of which 490,000 to 590,000 are in London and the South.

Last year alone, leaseholders paid more than £600 million in ground rents and they are expected to save up to a combined £12.7 billion in total over the entire lease term due to the cap, according to the Government.

The Competition and Markets Authority (CMA) said it had long been calling for a ground rent cap.

The watchdog has been leading a crackdown since 2019 on mis-selling of leasehold homes on contract terms that break consumer law, with probes involving major housing developers and freehold owners.

Sarah Cardell, chief executive of the CMA, said: “Our action has freed thousands of homeowners from doubling ground rents, and we have long supported a cap on ground rents to make sure all leaseholders get the fair deal they deserve.”