The government has announced plans to reform the leasehold system in England and Wales, with millions of leaseholders expected to be affected. Under the proposals, ground rents would be capped at £250 a year before reducing to a peppercorn rate after 40 years.
The plans were outlined by prime minister Sir Keir Starmer in a video published on TikTok this morning, in which he said the changes could reduce costs for some households. The proposals also include a ban on new leasehold flats and legislation intended to give homeowners greater control over their properties.
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.
The government estimates that this move will save some leaseholders more than £4,000 over the course of their lease. This will also unlock house sales for leaseholders whose lives have been put on hold because of ground rent terms that make their homes hard to sell.
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.”
Secretary of state for housing Steve Reed commented: “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.”
Forfeiture, whereby leaseholders can lose their home and the equity they built up by defaulting on a debt as low as £350, will also be abolished and a new enforcement regime will rebalance the system.
A new process to make it easier for existing leaseholders to convert to commonhold will also be introduced under a revamped commonhold model where homeowners will receive a stake in the ownership of their buildings and be given a stronger say in the issues that affect them, with greater control over how the building is managed and the bills they pay.
The reinvigorated commonhold system will ensure it works for all types of developments, as well as mortgage lenders, with strong management rules in place around repairs and leadership, and greater rights for homeowners.
Those living in the building will have a say in the annual budget and how the building is run, and new protections when things go wrong. Current leaseholders will also be given the opportunity to switch to commonhold, where the majority of residents agree to it.
The reforms build on action currently being undertaken by the government to implement the Leasehold and Freehold Reform Act 2024, including increased transparency over service charges so that leaseholders can better hold their landlords to account.
This comes as the government passed through its landmark Renters’ Rights Act.
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This is loooong overdue. I’ve had a few vendor clients over the last few years who have had to pay ££££s for a deed of variation because the ground rent had crept up past the £250 threshold. How these freeholder scammers have gotten away with it for so long blows my mind.
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Ground rents capped at £250 – some reality from the coalface
Today’s announcement is being billed as a “game-changing” reform of leasehold.
In practice, ground rents above £250 (£1,000 in London) have been non-compliant with mainstream mortgage lending for years.
Since 2017–18, lenders have largely refused to lend on leases with higher or aggressive ground rents, making those properties hard to sell without variation.
So this isn’t a new problem being discovered.
It’s government putting into law what the mortgage market already enforced.
That said, retrospective legislation will genuinely help some trapped leaseholders — but for most of the industry, the “game-changer” happened a long time ago.
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This is helpful up to a point as Dave Walker says. Only problem is, this does nothing for the spiralling costs of service charges which sometimes appear to be totally unrelated to the actual cost of maintenance and in some cases are still making properties unsaleable.
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Good point, and it’ll only take the more aggressive freeholders a few years to make up the shortfall in ground rent via spurious service charges.
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I have 4 landlords in a block, where the service charges have gone from £80 per month, to over £370 per month each. Market value exc service charges between £120,000 and £150,000, , the properties are now unsellable, on the open market or at auction – no one will touch them. Rent just about covers the mortgage and service charges, but they’ve now had a £90,000 re-roofing bill between 8 flats. Nightmare
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Is it actually helpful? It looks like it, but does it actually perpetuate the old system?
Most people are very bad at calculating compound interest or its reverse. I can be quite smug as I do it for a living.
Let’s assume that the new legislation is active on 1st January 2029… Then let us imagine a flat that on that dates is 5 years into a 125 year lease – the ground rent started at £200 and doubles every 25 years throughout the lease term.
Under the new system that means that there is currently 20 years left at £200, then 20 years at £250 and then it reduces to a peppercorn.
On the face of it that’s 20 times £200 plus 23 times £250 which would make a total payment of £9,750.
However, we have to take account of inflation and wage rises.
Therefore, the “present value” of this promise to pay the ground rent for the next 40 years is approximately £3,250. Under the the old rules the full present value of the intact doubling ground rent paid over the full 120 years is more but less than £1,900 more.
Any saving is good and worth having, but the freeholders are STILL WINNING…
And then what will be the unintended consequence be? Who knows, but somehow I doubt that the freeholders are actually going to lose out.
And guess which leaseholders gain the most…
It’s the already wealthy ones.
A flat worth £150,000 which has a ground rent of £300 will have its rent capped to £250.
A flat worth £1million with a ground rent of £1,000 will have its rent capped to £250.
How I wish I was in the 1% club!!!
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At last, something that this Government has finally got right. Next in line, extortionate service charges. I get asked day in day out why aren’t US banks and hedge funds buying houses and not flats. Well as I tell them, they can’t control service charge, management costs etc. What they are buying out though is the management companies of these large apartment complexes and upping service charges and in some cases owners can afford the mortgage costs but can’t afford the management costs and service charges and have no option to sell or failing that default.
It’s easy money, lets hope the Government can clamp down here as well as most first time buyers of property are buyers of apartments.
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