Ground rents for leaseholders in England and Wales are set to be capped at £250 a year as the government also proposes to ban new leasehold flats.
Existing leaseholders would gain the right to convert to commonhold under the consultation plans.
Announcing the cap in a video posted on TikTok, Prime Minister Keir Starmer said: “Good news for homeowners, we’re capping ground rent at £250. That means if you are a leaseholder, and your ground rent is more than £250, you’ll be paying less.
“And I’ve spoken to so many people who say this will make a difference to them of hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country. So this is a promise that we said we’d deliver and I’m really pleased that we’re delivering on that promise.”
The announcement marks the first time a British prime minister has made a major government policy statement via TikTok.
STRONGER CONTROL
The government says over five million leaseholders and future homeowners will benefit from stronger control, powers and protections, through the draft Commonhold and Leasehold Reform Bill published today (Tuesday 27 January), which will fundamentally rewire homeownership across England and Wales.
It will cap ground rent at £250 a year before ultimately reducing it to a peppercorn after 40 years – marking the end of residential leaseholders paying over the top bills for no clear service in return.
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.”
JUST A PROPOSAL, NOT LAW
Paula Higgins, chief executive of the HomeOwners Alliance, said: “We have consistently called for ground rents to be abolished and reduced to a peppercorn, because homeowners should not have to pay for the ground under the home they own.
“We are very pleased the government’s draft Bill promises to cap ground rents to £250 and eventually peppercorn for leaseholders and put an end to the outrageous practise of escalating ground rents.
“The financial sector should allow these reforms to go unchallenged.”
“But flat owners should be aware it is a proposal, not yet the law, and there are still significant hurdles to clear before these changes take effect.
“After years of delay, the financial sector and vested interests should now step aside and allow these reforms to go unchallenged. Time has been called on treating homeowners as a lucrative income stream.”
STRUGGLE TO SELL
Timothy Douglas, head of policy and campaigns at Propertymark, added: “We know from our research that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly.
“Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system.
“It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.”
VITAL OPPORTUNITY
And he added: “We also welcome steps to make it easier and cheaper to buy leasehold property and the ambition to transition towards commonhold, but agents and consumers will need clear guidance, education, and practical support to understand and navigate this change.
“A draft Bill provides a vital opportunity for policymakers to work with the sector to get the reforms right before legislation is passed into law. It is vital that the changes come in as soon as possible to support property transactions and that the costs are reduced for consumers.”
DRAFT LEGISLATION LONG AWAITED
Mark Chick, ALEP director and Senior Partner at Bishop & Sewell LLP, says: “This draft legislation is long-awaited, both by the industry and by the 5 million plus leaseholders in England and Wales.
“Reforming tenure structures may not attract the same attention as meeting housebuilding targets, but it remains a cornerstone of housing delivery.
“The structure of ownership underpins how communities are managed, maintained and held to account and reform was long-overdue.
““ALEP has consistently supported the government’s intention to reform leasehold. Its position is that reform must be workable, evidence-based and developed in partnership with the professionals who will be responsible for implementing it.
COMMONHOLD
“We welcome the consultation on commonhold. If commonhold is to succeed as a viable alternative to leasehold, its introduction must be practical, transparent and legally robust and this will require input from the wide range of professionals involved.
“There is clear political and public pressure to accelerate change, but reforms of this magnitude must balance speed with care. Rushed legislation rarely delivers clarity or certainty. The experience of implementing Leasehold and Freehold Reform Act (LAFRA) shows how important it is to get the detail right.
“Similar comments apply to the proposed cap and eventual sunset on ground rents which will potentially be susceptible to Human Rights Act challenges, although the government has been at pains to set out its approach in a policy statement for this very reason.”
Robert Poole, Director, Block Management, Glide Property Management, part of LRG, says: “Capping existing ground rents is a constructive step and will give many leaseholders more certainty, particularly where escalators and multipliers have caused problems. It helps settle one part of the cost picture and removes a source of unpredictability that has worried a lot of people.
“In reality, though, ground rent is only one part of what residents pay in a block or on an estate. The bigger issue is how charges work overall and how clearly they are set out. You see this just as much with estate management charges, where homeowners can face ongoing costs outside service charges that still have a real impact on affordability.
NOT A SIMPLE SWITCH
“That context is important when commonhold is discussed as a long-term alternative. It will have a role, particularly for new developments, but for existing buildings it is not a simple switch. Decisions still need to be made around funding, governance and long-term responsibility, whatever the ownership model.
“This is not about managing agents putting fees up for profit.”
“This is not about managing agents putting fees up for profit. Block and estate management runs on tight margins, and many agents are working hard to keep costs down while dealing with growing regulation and safety requirements.
“In some situations, agents simply have to work within the commercial arrangements already in place.
“So while capping ground rents is helpful, it won’t on its own make homes more affordable. The next stage needs to look at how charges are structured and how transparent they are.
“Getting that right is what will make the system work better for leaseholders, freeholders and homeowners in the long term.”
