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The UK government has announced a cap on ground rents as part of a wider overhaul of the leasehold property system. Annual ground rents will be limited to GBP 250 and gradually reduced to a nominal level after 40 years, affecting over 5 million leaseholders in England and Wales. The move aims to ease long-term costs for homeowners and revive stalled property sales. While the reform fulfils a key Labour election promise, asset managers and freeholder groups have raised concerns over its impact on existing contracts and investor confidence.
Britain has announced a major change to its leasehold property system by placing a cap on annual ground rents, a move aimed at easing long-term costs for homeowners. The government said ground rents will be limited to GBP 250 per year, with charges set to fall to a nominal "peppercorn" level after 40 years. The change is expected to reduce the financial burden on millions of households living in leasehold homes. Advertisement
The reform follows a commitment made by the Labour Party ahead of the 2024 general election to address what it described as unregulated and unaffordable ground rent practices. Prime Minister Keir Starmer said the promise had now been delivered, noting that the measure would help households facing rising costs linked to leasehold ownership.
In the UK property market, homes are typically sold as freehold or leasehold. Freehold owners control both the property and the land, while leaseholders own the right to live in the property for a fixed period and must pay ground rent and other charges to the freeholder. This structure has meant that millions of homeowners do not own the land beneath their homes and can be subject to escalating fees or restrictive terms set by landlords.
The government said the new cap will apply to more than 5 million leaseholders in England and Wales. Over time, the permitted ground rent will reduce to a token amount, effectively removing it as a long-term cost. Officials added that the change could save some families thousands of pounds over the full duration of their leases and help revive property transactions that have stalled due to high or unpredictable ground rent clauses.
The leasehold system has deep historical roots, dating back to medieval land laws and later formalised in the early twentieth century through long residential leases. In recent years, it has faced growing criticism from homeowners and campaigners who argue that ground rents offer little value while inflating housing costs.
While the reform has been welcomed by many leaseholders, it has drawn criticism from parts of the investment community. Freeholder groups have warned that applying a cap retrospectively would interfere with existing property contracts. M&G, one of the UK's largest asset managers, said the move could negatively affect savers and companies with exposure to UK assets and could raise concerns about the country's reputation as a stable destination for investment.
Alongside the cap, the government said it plans to ban the creation of new leasehold flats, marking a further shift in how residential property is structured in England and Wales.
Source Reuters
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