Ground rents will be capped at £250 a year for millions of leaseholders in England and Wales under sweeping reforms unveiled by the government, in what ministers say is a decisive step towards dismantling the country’s “medieval” leasehold system.
Announcing the policy in a TikTok video ahead of the publication of the draft Leasehold and Commonhold Reform Bill, prime minister Keir Starmer said the change would save some households hundreds of pounds a year at a time when the cost of living remains under intense pressure.
“I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds,” Starmer said. “That matters, because the cost of living is the single most important issue across the country.”
The cap will apply to existing leasehold homes from 1 October 2030. Over time, ground rents will be reduced further until they reach a “peppercorn”, effectively zero, after 40 years. Ground rents for most new leasehold homes were already abolished in 2022, but millions of existing leaseholders continued to face escalating charges.
Under the proposals, new leasehold flats will be banned altogether, forfeiture will be abolished, ending the risk of leaseholders losing their home over relatively small debts, and it will be made easier for residents to convert their buildings to commonhold, where they jointly own the freehold and do not face expiring leases.
There are around five million leasehold homes in England and Wales, with leasehold remaining the default tenure for flats. According to the Land Registry, 99 per cent of flats sold in England in 2024 were leasehold. The English Housing Survey estimates that leaseholders paid an average annual ground rent of £304 in 2023–24.
The reforms aim to tackle practices where ground rents double or rise in line with inflation at set intervals, clauses that have left many homes difficult to sell or remortgage.
Property and mortgage experts broadly welcomed the announcement, while warning that the detail and implementation will be critical.
Omer Mehmet, managing director at Trinity Finance, said the move was long overdue.
“Capping ground rents at £250 is a sensible reform that will immediately improve affordability and confidence for millions of leaseholders,” he said. “Excessive ground rents have distorted values and blocked sales for years. The success of this reform will depend on clear implementation and lender alignment.”
Richard Davidson, mortgage adviser at Online Mortgage Advisor, said high ground rents regularly prevent buyers from securing finance.
“Too many clients are unable to buy or sell because of excessive ground rents,” he said. “This is a positive step towards reforming an outdated system, although the shift to commonhold needs to be handled carefully.”
Others warned of unintended consequences. Chris Barry, director at Thomas Legal, said the reforms would hit pension funds heavily invested in freeholds.
“This is good news for leaseholders and should unlock stalled transactions,” he said. “But it’s bad news for pension funds that rely on ground rent income, which could have knock-on effects for people indirectly invested through pensions.”
Some landlords and investors also raised concerns about the wider impact of banning new leasehold flats. Riz Malik, director at R3 Wealth, said lenders would need to be fully aligned with the new system.
“Ground rents have been a problem for years, particularly in newer developments,” he said. “But before scrapping new leasehold developments entirely, it’s crucial that mortgage lenders are on board. Time will tell.”
Justin Moy, managing director at EHF Mortgages, described the announcement as a “positive start”, noting that many leasehold properties currently fail lender criteria due to high or escalating ground rents.
The proposals had been politically sensitive, with reports of tension between the Treasury and housing department over the potential impact on institutional investors. Last week, former Labour minister Justin Madders warned of a possible rebellion if the government failed to act.
While some campaigners had pushed for an immediate peppercorn cap, Madders said he could accept a £250 limit to avoid lengthy legal challenges.
Housing minister Matthew Pennycook has previously said his preference was to drive ground rents as close to zero as possible.
The Residential Freehold Association, which represents professional freeholders, criticised the move as “wholly unjustified” and warned it could undermine the UK’s reputation for protecting property rights.
Ministers argue the reforms are essential to restore confidence in homeownership, revive stalled flat markets and bring an end to a system that has long been criticised as opaque and unfair.
If passed, the bill would represent the most radical overhaul of leasehold law in decades, reshaping how millions of people own and finance their homes.
