Ground rent is charged by the owner of the land on which leasehold properties sit

Millions of leasehold homeowners will see their ground rent capped at £250 thanks to a shake-up of the system announced today.

Prime Minister Keir Starmer used social media platform TikTok to announce the proposed changes to the outdated leasehold system, which will save some families hundreds of pounds.

Ground rent is charged by the owner of the land on which leasehold properties sit. Although this mostly applies to flats, some houses can also be subject to the charge if someone else holds the freehold.

Through the Commonhold and Leasehold Reform Bill published today ground rent will now be capped at £250 a year before being reduced a little after 40 years.

The Prime Minister said this move would ensure leaseholders kept more of their hard-earned cash, with many seeing savings of more than £4,000 over the course of their lease.

It would 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.

In addition, under the reforms, new leasehold flats will be banned. Instead, they will be built as ‘commonhold’ which means the owner, along with their neighbours, will own the ground their flat is built on along with the overall building. This should give owners more rights over their property.

The bill will also make it easier for existing leaseholders to convert to commonhold.

Secretary of state for housing, Steve Reed, said: 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, he said.

The reforms will now begin the process of being scrutinised in stages through parliament. As such, the ground rent cap is expected to be enforced in late 2028. In the meantime, the reforms have been welcomed by mortgage brokers.

Richard Davidson, mortgage advisor at onlinemortgageadvisor.co.uk, told the Newspage Agency said he sees many leaseholders unable to sell due to high ground rent.

Capping ground rents at £250 per year is a positive step toward reforming the outdated medieval leasehold system, he said. Too many of our clients are unable to buy or sell properties due to excessive ground rents.

He added: Lenders have increasingly clamped down on excess ground rent in recent years, so this move will free up the market, which is great news for anyone looking to buy. However, a shift to Commonhold, whilst welcomed, needs to be carefully considered so we don’t throw the baby out with the bathwater.