Ground rents to be capped at £250 a year for leaseholders

Ground Rents to be Capped at £250 a Year for Leaseholders

Ground rents paid by leaseholders in England and Wales will soon be capped at £250 per year, as part of the UK government’s ambitious reforms aimed at transforming home ownership. These changes aim to provide leaseholders with greater autonomy over property management and address long-standing concerns over escalating costs.

Key Highlights of the Ground Rent Cap

– Reform Overview: The draft Leasehold and Commonhold Reform Bill proposes not only the ground rent cap but also plans to ban the sale of new leasehold flats.
– Campaign Background: There were concerns that the government might abandon the cap due to potential repercussions for pension funds, yet Labour MPs, including former Housing Secretary Angela Rayner, advocated for fulfilling Labour’s manifesto commitment to eliminate unregulated and unaffordable ground rent charges.
– Announcement: Prime Minister Sir Keir Starmer revealed the cap via a TikTok video, emphasizing that it would save some leaseholders hundreds of pounds, which is crucial amid rising living costs.
– Historical Context: Approximately five million homes in England and Wales are leasehold, where occupants hold a lease from a freeholder for a limited duration.

The Implications of Capping Ground Rents

– Previous Abolishment: Ground rents for most newly constructed residential leasehold properties were abolished in 2022. However, existing leasehold homes remained subject to these fees, often with terms that caused rents to double or get adjusted based on inflation.
– Future Provisions: The government plans for ground rents to essentially reduce to a peppercorn—nearly zero—over a 40-year timeline. Additionally, the current practice of forfeiture, which could lead leaseholders to lose both their home and equity for as little as £350, will be eliminated.
– Encouraging Commonhold: The pending bill will simplify the process for existing leaseholders to transition to commonhold, allowing joint ownership of both flat and the land.

Leaseholders’ Reactions and Concerns

– Relief Amid Uncertainty: Phil Jones, a leaseholder in Essex, expressed relief but voiced skepticism about potential legal challenges from freeholders. His current ground rent of £500 per year makes selling nearly impossible due to mortgage restrictions.
– Struggles of Others: Jade Kavanagh-Barnes faced difficulties selling her leasehold flat in Manchester because of her ground rent exceeding £700. She welcomed the reforms as a positive step, provided that freeholders did not obstruct the changes through legal means.

Industry Perspectives

– Reactions from Freeholders: The Residential Freehold Association criticized the cap, deeming it wholly unjustified and warning against the erosion of the UK’s investment reputation due to unpredictable alterations in property rights.
– Campaign Support: Campaigners argue that capping ground rents addresses escalating fees that hinder leaseholders’ ability to sell their homes. However, many advocate for an immediate shift to a peppercorn rate, underscoring that leaseholders shouldn’t be burdened with any charges.

Moving Forward

The proposed reforms are under review by MPs on the Housing Committee before they progress through Parliament, with the government estimating that the cap could be implemented by late 2028. As leaseholders and advocates await the outcome of these reforms, the focus remains on resolving the challenges posed by the leasehold system.

In conclusion, the cap on ground rents at £250 a year represents a significant step towards modernizing home ownership in England and Wales. These changes aim to alleviate the financial burdens of leaseholders, promoting fairer practices within the housing market while addressing concerns of both current and future homeowners.