Ground rents to be capped at £250 a year for leaseholds in "positive step toward reforming the outdated system"

GROUND rents are set to be capped at £250 a year for leaseholds in a "positive step toward reforming the outdated system".

Millions of leaseholders across England and Wales are set to benefit from a major shake-up of the leasehold system – with ground rents set to be capped at £250 a year, Keir Starmer has announced. 

The Prime Minister said the cap will save some families hundreds of pounds as the cost of living is the single most important issue across the country.

New leasehold flats will also be banned and homeownership strengthened thanks to groundbreaking legislation that will give people control over their homes and calls an end to the feudal leasehold system which dates to medieval times.

Over 5 million leaseholders and future homeowners will benefit from stronger control, powers and protections, through the draft Commonhold and Leasehold Reform Bill published today, 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.

This move will ensure leaseholders keep more of their hard-earned cash, with many seeing savings of over £4,000 over the course of their lease, improving cost of living for millions. 

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.”

Omer Mehmet, Managing Director at Trinity Finance, said the move was positive.

He added: “Capping ground rents at £250 is a sensible and long-overdue reform that will immediately improve affordability and confidence for millions of leaseholders. 

"Excessive ground rents have distorted values and blocked sales for years, so this move should free up parts of the market that have effectively been stuck. The success of these reforms will depend on clear implementation and lender alignment to ensure buyers can benefit without new uncertainty.”

Richard Davidson, Mortgage Advisor at onlinemortgageadvisor.co.uk, said he sees many unable to sell due to high ground rent.

He continued: “Capping ground rents at £250 per year is a positive step toward reforming the outdated leasehold system. Too many of our clients are unable to buy or sell properties due to excessive ground rents. 

"Lenders have increasingly clamped down on excess ground rent in recent years, so this move will free up the market, which is great news for anyone looking to buy. However, a shift to Commonhold, whilst welcomed, needs to be carefully considered so we don't throw the baby out with the bathwater.”

Chris Barry, Director at London-based Thomas Legal, pointed out that it is bad news for pension funds “heavily exposed to freeholds”.

He added: “This is no doubt good news for current and future leaseholders as the cost of owning a leasehold property reduces. This in turn will make some flats or apartments with high or doubling ground rent more attractive to buyers and may even increase property prices. 

"The change should also speed up the house buying process as doubling ground rent can often delay the conveyancing process, especially when the buyer is getting a mortgage. Changing tenure to common hold may also speed up the conveyancing process as common hold will be new and therefore the information a conveyancer will need should be readily available. 

"Today's news is bad news for pension funds who are heavily exposed to freeholds and this could impact the lives of working people who are indirectly invested in the assets which will take an enormous income hit in some cases.”

Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said time will tell if scrapping new leasehold developments is a good idea.

He continued: “Ground rents have been an issue for some time especially with newer developments, so it’s good that a cap has been put in place. 

"However, before scrapping new leasehold developments, I hope the government has adequately consulted key stakeholders such as the mortgage lenders who are going to lend on them. Time will tell.”

Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, called the news a "positive start".

He added: “We have seen too many leasehold properties fail mortgage lender criteria simply due to high ground rent and onerous terms for future increases, so this will be a very welcome announcement for those who are currently stuck with unmortgageable properties and limited options. 

"This will also reduce the number of flats and leasehold properties needing to go to auction, allowing more first-time buyers to buy with some confidence, while lenders have fewer concerns about security values in the near future. It's a positive start in tackling the leasehold conundrum.”

Rohit Kohli, Director at Romsey-based The Mortgage Stop, applauds the government's move.

He continued: "This is the most positive housing move we’ve seen from this government. For years reform was talked about and parked; a hard cap stepping down to a peppercorn gives clients real reassurance that ground rent won’t keep creeping up. 

"That stability helps household budgets and gives buyers more confidence when assessing flats. It’s not a cure-all -service charges and unresolved cladding issues still bite. The big watchpoint is delivery: how commonhold on new flats will operate day to day, and how quickly lenders update criteria. We’ll need clear rules and timelines. Overall, a strong step, provided the detail matches the promise."