Ground rent cap for leaseholders: What is changing, why is it controversial and

The Prime Minister today announced that the ground rents leasehold property owners in England and Wales pay to their freeholders will be capped at £250 a year.

Making the announcement in a video on TikTok this morning, Keir Starmer said the cap will save some families hundreds of pounds.

There are estimated to be more than 5million leaseholders, 4.2 million of which pay ground rent, according to Government figures.

Leaseholders pay ground rents to their freeholder for the ‘right’ to occupy the land their home is built on. Some see it as controversial as it is a nominal charge and there is no service given by freeholders in return.

The Government’s plan is that, in 40 years’ time, the £250 cap will change to become a ‘peppercorn’ or virtually zero. 

The proposal could have a wider economic impact, as pension funds invest in freehold property and charge ground rents in order to pay out to retirees. 

We set out to explain what the £250 ground rent cap will mean for leaseholders, whether it will happen and what it could mean for the property market. 

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

How much is ground rent now? 

With leasehold, people buy the right to live in their home for a set period of time, but don’t own the land it sits on. 

This arrangement is most common with flats, but it can happen with houses, especially on new-build estates. 

Among leaseholders who pay ground rent, the average household pays £304 per year, according to the latest English Housing Survey from 2023 to 2024.

Although the average may have increased since then, this suggests the average leaseholder will make £54 in savings each year when the cap is introduced.

However, annual ground rent is typically lower for leaseholders living in houses than flats.

The average leaseholder in a house pays £199 while those in flats pay £343, according to the survey. It means the average leaseholder living in a flat will make a £93 yearly saving, thanks to the cap. 

In London, the typical leaseholder in a flat is paying £412 a year in ground rent meaning the cap will save them £162 a year on average.

Leasehold houses are most common in the North West, whereas leasehold flats are most common in London. 

With the North West excluded, the average ground rent for houses is £360. 

In reality, there will be many leaseholders paying vastly more than the average. For these people, today’s announcement will be a huge relief. 

End leasehold: Campaigner Harry Scoffin (right) is worried that the cap not taking effect until end of 2028 is far too close to the next general election

When will the £250 cap start?

The £250 cap is part of the draft Commonhold and Leasehold Reform Bill, published today. At the moment, it is just a proposal and not law. 

It will now move into what is known as pre-legislative scrutiny, expected to be carried out by the Housing, Communities and Local Government Select Committee. 

The Government has suggested the £250 ground rent cap could come into force in late 2028, though it could take longer. 

Separate legislation to reform leasehold, the Leasehold and Freehold Reform Act, was passed more than 18 months ago but implementation  has been held up by legal challenges from freeholders. 

Harry Scoffin, founder of campaign group Free Leaseholders, thinks the government is being too slow to take action.

‘A ground rent cap not taking effect until the end of 2028 is far too close to the next general election, repeating the foot-dragging of governments of old,’ he says.

Why are ground rents a problem? 

The Leasehold Reform (Ground Rent) Act 2022 effectively banned ground rents on leases granted after June 2022. 

Today’s proposal would eventually extend this to the majority of leaseholders, whose leases started before then. 

While an average ground rent of £304 per year might seem a relatively small amount, some leases include clauses which rise in line with the retail price index inflation rate every five, 10 or 20 years. 

This meant someone who bought a flat with a £600 annual ground rent in 2016 would see their ground rent rise to around £950 this year. In 10 years it would have risen again and they were entirely at the mercy of what happened to inflation in the interim.

Other ground rents double every 10, 20 or 25 years. Under a 10 year clause, that would see someone paying £600 in 2016 double to £1,200 this year, then in 2036, their ground rent would rise to £2,400 and then to £4,800 in 2046 and so on.

A further complication is that a bank may refuse to lend on a home if the ground rent exceeds 0.1 per cent of a property’s value. 

Unmortgageable: Many banks refuse to lend…