Announced this morning, ground rents are to be capped at £250 per year, with a peppercorn cap in place after 40 years
New UK leasehold flats are also to be banned as the legislation aims to give people more control over their homes.
This marks the ending of a system that has been in place since medieval times, and 5 million people can expect to see changes to their payments.
The legislation has been published today
The Commonhold and Leasehold Reform Bill fundamentally changes the way leaseholders pay rent to the commonholders. Leaseholders own their home, but not the land it is built on, and so must pay ground rent to the commonholder who owns the land. This can often be thousands of pounds over the course of the lease.
Now, this rental payment will be capped at £250 per year for 40 years, after which the payment will be reduced to a peppercorn – essentially a token minimal payment, of which a number has not been stated.
Secretary of state for housing, Steve Reed, said: “If you own a flat you can be forced to pay ground rents that can become completely unaffordable. We said we’d be on the side of leaseholders – which is why today we are capping ground rent – helping millions of leaseholders by saving them money and giving them control over their home.
“The leasehold system has tainted the dream of home ownership for so many. We are taking action where others have failed –strengthening home ownership and calling time on leasehold for good.”
A good move for the construction industry?
While the move may be applauded by leaseholders, there are those who worry that this may affect the housing market negatively, which will in-turn impact the housebuilding industry.
Stuart Collar Brown, auctioneer at Bidx1, said: “While a £250 cap sounds like a win for consumers, the industry has already self-regulated most of the truly toxic ground rents. The real danger here is that by removing the incentive for institutional freeholders, who are often pension funds, we risk leaving people to manage complex flat blocks and buildings themselves. If these professional entities exit the market, you could have 100 residents in a block, with no prior experience, suddenly responsible for insurance, lift maintenance, and major structural repairs. For many, paying £250 a year for professional oversight is a price well worth paying for peace of mind.
“We also have a significant hurdle with mortgage lending. Many banks currently refuse to lend if ground rent exceeds 0.1% of a property’s value. If a flat is worth £200,000, a £250 ground rent still breaches that threshold. Without a parallel agreement from lenders to update their criteria, thousands of homes will remain effectively unmortgageable despite the cap.
“At a market level, we have to look at the unintended consequences for pensions. These ground rents are low-risk, steady assets for the funds that pay out our retirement pots. By capping them, we aren’t just hitting ‘wealthy freeholders’; we’re impacting the savings of millions of ordinary people. We need a system that offers clarity, but we must ensure we aren’t replacing one friction point with a management vacuum that makes flats even harder to sell in the long run.”
Writing for PBC Today in October last year, the Institute of Human Rights and Business’ UK programme manager, Gordon Miller, discussed how important the housing market is to the construction industry, and how issues affecting one will affect the other.
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