Ground rents to be capped at £250 a year for leaseholders in England and Wales

Ground rents paid by leaseholders are to be capped at £250 a year in England and Wales. The reforms have been published in a draft Leasehold and Commonhold Reform Bill which will be introduced by housing minister Matthew Pennycook in Parliament.

What the reforms do

Under the reforms ground rent will be reduced to a peppercorn, effectively zero, after 40 years. The reforms include proposals to ban the sale of new leasehold flats and make it easier for existing leaseholders to convert to commonhold.

Forfeiture, whereby leaseholders can lose their home and the equity they built up if they default on a debt as low as £350, will be abolished.

Timing and scale

The government said the cap could come into force in late 2028. There are around five million leasehold homes in England and Wales.

An estimated 99% of flat sales in 2024 in England were leasehold. The English Housing Survey estimated that in 2023/24 leasehold owner-occupiers reported paying an average annual ground rent of £304 a year.

Projected savings and scope

The government said the change will save many people £4,000 over the course of their lease. The government said leaseholders are expected to save up to a combined £12.7 billion in total over the entire lease term due to the cap.

The housing secretary said nearly a million people will see their ground rents reduced and nearly five million will know their rents will never go above £250. The Government estimates about 770,000 to 900,000 leaseholders pay more than £250 a year, of which 490,000 to 590,000 are in London and the South.

Investor reaction and financial impact

M&G said it is directly exposed to £722 million of ground rent assets and that the proposed changes would lead to a one-off £230 million reduction in Group Solvency II Own Funds and an expected ~£15 million hit to annual profits.

We are disappointed that we have not been able to agree a proportionate solution that works for all parties.

Housing Secretary Steve Reed said the reforms 'protect people's pensions but also protects leaseholders from unreasonable increases'. Ministers said freeholders would not be offered compensation under the reforms.

Campaigners, regulators and freeholders

Campaigners and groups said the 40-year timetable to reach a peppercorn rent is too long and urged immediate peppercorn rents. The Competition and Markets Authority welcomed the reforms and said it had long supported a cap on ground rents.

The Residential Freehold Association said capping ground rent was "wholly unjustified" and warned it would damage investor confidence. M&G described the proposed solution as "disproportionate" and said it would consider its response.

Legal and market uncertainty

Some leaseholders and campaigners fear freeholders and pension funds may challenge the reforms in court. Market analysts warned pension funds and life insurers may reassess holdings in ground-rent-related investments. An analyst suggested the reforms could prompt a short-term surge in supply that might put downward pressure on prices in some areas.

State of play

Ground rents paid by leaseholders are to be capped at £250 a year in England and Wales. The government said the change will save many people £4,000 over the course of their lease. The Residential Freehold Association said capping ground rent was "wholly unjustified" and warned it would damage investor confidence. The government said the cap could come into force in late 2028.

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