Ground rents for leaseholders will be capped at £250 a year before dropping to a peppercorn rent after 40 years, Steve Reed has announced.
The housing secretary confirmed the move on Tuesday morning, hitting out at ground rents as a “a bit of a scam”, “a racket” and “paying money for nothing”.
Ground rents are a charge that leaseholders pay to live on land they do not own. It does not require a service in return and is regarded by critics as emblematic of the feudal nature of England’s centuries-old leasehold system.
Under the new changes, ground rents will be capped from 2028, before dropping to a nominal amount, which Mr Reed told Sky News will “lead to abolition” of ground rents altogether.
The reforms will also see new leasehold flats banned, while existing leaseholders will get the right to switch to commonhold.
There are currently around five million leaseholders in England and Wales.
Announcing the move, the housing secretary told Mornings with Ridge and Frost: “People have been campaigning to abolish this for decades. So today is quite a historic moment for leasehold reform because this government is going to do what we said in our manifesto.
“Once that comes into force – and it’ll happen in this parliament – nearly a million people are going to see their ground rents reduced and nearly five million people will know that their ground rents will never go above £250.”
Mr Reed also confirmed that his junior colleague, Matthew Pennycook, will formally unveil the changes, as part of the Commonhold and Leasehold Reform Bill, in the Commons later on Tuesday.
When challenged that leaseholders continue to face other expensive costs and expenses, Mr Reed replied: “We launched a consultation last summer about the service charges leaseholders have to pay… ‘Fleecehold’, a lot of people call it, because they feel they’re being literally fleeced of their money without ever being told what the money is being used for.
“We’re going to change all of that and announcements will be made following the consultation over coming weeks.”
Other reforms being introduced include the scrapping of forfeiture, where leaseholders can lose their home and the equity they built up by defaulting on debts, while a new enforcement regime will be introduced, which the government hopes will be fairer.
The commonhold system will also be revamped, giving homeowners a stake in the ownership of their building and more control over how it is managed and the bills they pay.
Success for Angela Rayner but no joy for Rachel Reeves
The decision will be seen as a victory for former deputy prime minister Angela Rayner, who championed capping ground rents while in government.
Sir Keir Starmer, who formally announced the move first in a video on TikTok, will have also pleased his party’s backbenchers by implementing the manifesto commitment – despite cabinet splits.
The government has been facing heat from some Labour MPs who feared ministers might not introduce the reforms in full, and were warning this would amount to a “betrayal”.
But Chancellor Rachel Reeves is said to be against the move, as she believes that capping ground rents will deter pension fund investors.
The Conservatives scrapped ground rents on new leasehold properties and were planning to cap existing ones but ran out of time before the 2024 general election. They previously argued that less than 1% of pension fund assets were invested in residential property.
Andrew Griffith, the shadow business secretary, told Sky News on Tuesday that his party “did an awful lot to improve the lot of leaseholders [when in government] but I accept there’s more that needs to be looked at”.
The senior Tory added: “There’s an important balance between protecting people’s pensions and a pension fund that sound academic, but it’s actually people’s pensions themselves as well.”
Meanwhile, the Liberal Democrats have called on the government to go further, demanding “an end to the absurd, feudal system of leasehold for good”.
“People are being fleeced by a system that restricts their rights in a way that is indefensible in the 21st century,” they added.
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Reacting to the move, the Residents Freehold Association has warned that the inclusion of a rent cap is a “wholly unjustified interference with existing property rights” and will “seriously damage investor confidence in the UK housing market”.
A spokesperson for the group added: “The government’s draft bill will tear up long-established contracts and property rights, which are pillars of the UK’s investment reputation. The resulting forced exit of professional freeholders from the sector, will hinder building safety projects and disrupt the day-to-day lives of residents.”
They have urged the government to focus on regulating managing agents and improving transparency for leaseholders instead.
