Ground rent for leaseholders will be capped at £250 per year

Ground rents paid by leaseholders in England and Wales will be capped at £250 a year as part of the UK government’s plans to overhaul home ownership.

The reforms also include proposals to ban the sale of new leasehold flats and give homeowners more control over how their buildings are managed.

Campaigners feared the government could raise the cap on ground rent – ​​an annual fee that leaseholders must pay to their freeholders – because of the potential impact it could have on pension funds.

But Labour MPs, including former housing secretary Angela Rayner, had urged the government to stick to the party’s manifesto promise to tackle “unregulated and ineffective ground rent charges.”

Corrections have been published regarding a draft Leasehold and Commonhold Reform Bill.

In a TikTok video, Prime Minister Sir Keir Starmer announced the limit and said the move would save some leaseholders “hundreds of pounds.”

“It’s really important because the cost of living is the most important thing in the entire country,” he said.

The Labour Party’s 2024 election manifesto promised to “finally end the feudal leasehold system”.

There are approximately five million leasehold homes in England and Wales, where people have the right to occupy the property through a lease from the freeholder for a limited number of years.

Ground rent was abolished for most new residential leasehold properties in England and Wales in 2022 but remained in place for existing leasehold homes.

Some leases include a clause stating that the ground rent doubles.

It is common for leases to include a clause that the ground rent doubles or increases by RPI inflation at certain intervals, which can make it difficult to sell a property or obtain a mortgage.

The Labour government says that under its reforms, ground rents will eventually be reduced to the equivalent of a peppercorn after 40 years, effectively zero.

The bill will abolish forfeiture, which could cause leaseholders to lose their home and the equity they have built if they default on a loan of as little as £350.

The bill will make it easier for existing leaseholders to convert to commonhold, meaning the occupants jointly own the land on which a flat is built as well as the building, without any termination of the lease.

The bill will now be scrutinised by MPs on the housing committee before being passed in Parliament, with the government saying the cap could be enforced as late as 2028.

Treasury sources had previously acknowledged the challenges in defining annual ground rent charges.

Housing Secretary Steve Reed stated that the government’s reforms have effectively balanced the protection of people’s pensions with the protection of leaseholders from unfair increases.

“Five million leaseholders will now know they will never have to pay more than £250 again and over time, this will reduce to zero,” he told BBC Breakfast.

Phil Jones, 57, bought his two-bedroom leasehold flat in Westcliff-on-Sea, Essex, 25 years ago. His ground rent doubles every 10 years and is now £500 per year.

He says the situation makes his flat unsellable, as mortgage companies will not lend on a property with a double ground rent clause in its lease.

He described this announcement as a “big relief” and said that at least now he can think about selling his property.

However, he expressed optimism that freeholders would challenge the proposed ground rent cap at the peppercorn rate.

The Residential Freehold Association, which represents professional freeholders, said capping ground rents was “wholly inappropriate” and warned about the impact on the UK’s reputation for investors.

A spokesperson said the bill would “destroy long-established contracts and property rights, which are pillars of the UK’s investment reputation”.

Campaigners had called for the cap to be set, saying rising ground rents were leaving leaseholders struggling to sell their homes.

However, some people wanted the government to go further and limit ground rent to the peppercorn rate – effectively, zero.

Harry Scoffin, founder of the campaign group Free Leaseholders, said, “If leaseholders are paying for nothing, they should be paying nothing today, not in 2068.”

The National Leasehold Campaign said that while it was disappointed by the government’s decision not to immediately enforce Pepper’s ground rent, it welcomed the cap.

“It’s also encouraging that the government recognises that monetary ground rents should end,” said Joe Darbyshire, a co-founder of the group.

“However, 40 years is an incredibly long time to wait for peppercorn ground rent.”

Many tenants also complain about high service fees, which they must pay for building upkeep and management.

The government says its leasehold reforms will build on planned changes to make service charge bills clearer and help people challenge unfair costs.

Leasehold is the default tenure for privately owned flats, and the Land Registry estimates that 99% of flat sales in England in 2024 were leasehold.

The English Housing Survey estimates that in 2023/24, leasehold owner-occupiers reported paying an average annual ground rent of £304 per year.

In 2024, when Labour was in opposition, the current housing minister, Matthew Pennycook, said his priority was to effectively cap ground rents at zero.

Writing in the Guardian earlier this month, Rayner said ministers had fallen victim to “fierce lobbying by wealthy investors” who were trying to undermine the commitment and warned that people could lose confidence if the party could not fix the “blatant injustice” to a certain extent.

And last week, former Labour minister Justin Madder told the BBC the prime minister could face a “mass revolt” if the government abandons its pledge to limit land rents.

He said that setting a cap on pepper prices would be his preferred choice, but he could accept a cap of £250 because of “risk.”