Ground rent cap won’t save us from our ‘toxic’ homes, say beleaguered

Leasehold flat owners claim their homes remain a ‘toxic’ asset despite the Government’s proposal for a £250 annual cap on ground rents.

The Prime Minister, Keir Starmer, announced the cap as part of the draft Commonhold and Leasehold Reform Bill yesterday, but it is not likely to become law until at least 2028.

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. 

However, some leasehold property owners say the cap won’t save them from what they describe as ‘toxic’ homes. They say homeowners are still being held to ransom by freeholders and managing agents via ever-increasing service charges and hidden insurance commissions.

Many bought leasehold flats as a stepping stone on to the property ladder. Now, years later, they are finding their homes have lost value, and in some cases, are not even possible to sell. 

Prime Minister Keir Starmer says the cap will save some families hundreds of pounds

‘Ground rent is just the start of my problems’

Joe Douglas, 35, bought his two-bedroom flat in North London in 2015 for £262,000 using the Help to Buy scheme.

For Joe, ground rent is the least of his worries. His flat remains unsellable and unmortgageable because it was found to have potentially unsafe cladding. Works to remedy this are ongoing. 

Joe is now letting the property out, and living in the one-bed flat his wife owned before they got married. All Joe’s money is tied up in the flat, meaning the couple cannot afford to buy anything else.

‘I’ve wanted to sell the flat for six years,’ he says. ‘It’s essentially worthless with the cladding situation. My wife and I are currently living in her one-bedroom flat but we need somewhere bigger.’

Property ladder: Joe Douglas bought his two-bedroom flat in North London in 2015 for £262,000 using the Help to Buy scheme

Joe currently pays £330 in ground rent to his freeholder although this increases in line with RPI every five years. The ground rent began at £250 and increased in 2022. The next review is scheduled for 2027 and Joe estimates it will rise to more than £400 given the surge in inflation.

While he sees the £250 cap as progress, he does not feel it will change conditions for most leaseholders.

‘The financialisation of our homes should have never been allowed to happen in the first place, says Joe.

‘Yes, the cap is a start, but ground rents are just the overt way freeholders take our money. 

‘They also covertly take our money through hidden commissions and fees and they will continue to rip people off regardless of ground rent.

‘Leasehold is absolutely toxic because these third party freeholders are essentially charging money for nothing and ramping up costs in any way they can.’

‘I’ll be 97 before ground rents are phased out’ 

Phil Jones, 57, a leaseholder of a two bedroom flat in Westcliff-on-Sea in Essex welcomed the news. 

His ground rent is subject to a ‘doubling clause’ which means it doubles in size at set intervals. It recently doubled from £250 to £500 and is set to go to £1,000 in 2033.

For Phil, the ground rent cap will be a lifeline, as the ‘doubling clause’ has meant he could neither sell nor get a new mortgage.

Phil Jones, 57, a leaseholder of a two bedroom flat in Westcliff-on-Sea in Essex recently saw his ground rent double from £250 to £500

‘I extended my lease in 2013 to 115 years at the cost of £15,000 with the ground rent set at £250 per year,’ he explains. 

‘The freeholder slipped in the onerous ground rent clause, which doubles every 10 years. This was not brought to my attention by my solicitors. 

‘So in 2023 I got a bill for £500 and only then did I know what situation I was in. 

‘I asked the freeholder if we could either remove or cap the ground rent and they then informed me that I could remove it for £60,000 fee.’

But while he says the £250 cap is a positive step, Phil argues the Government needs to do more to help leaseholders.

‘In truth I feel like a renter, not a homeowner,’ he says. ‘I still have a lease that is running down and a freeholder looking to make money out of me.

‘Ground rent should be peppercorn in line with new leases and not phased out over 40 years. I’ll be 97. 

‘I’m also very worried about it not being introduced until the end of 2028 and whether the reforms will end up happening before the next general election – so just more worry, stress and uncertainty ahead.’

Aside from the ground rent cap, the government’s draft Commonhold and Leasehold Reform Bill, published today will aim to make it easier for existing…