While much of the property industry has welcomed the government’s decision to cap ground rents at £250 a year, concerns are growing that the reform could have unintended consequences for investors, lenders and the long-term management of apartment blocks.
Under proposals in the draft Leasehold and Commonhold Reform Bill, ground rents on existing leasehold properties would be capped at £250, with the government ultimately aiming to reduce them to a peppercorn. Ministers say the move will improve affordability and make flats easier to buy and sell, but critics warn it could undermine investor confidence and destabilise the freehold market.
Stuart Collar-Brown, auctioneer at Bidx1, says the focus on headline affordability risks overlooking the practical role professional freeholders play.
“We risk trading a financial headache for a management nightmare,” he warned.
“While a £250 cap sounds like a win for consumers, the industry has already self-regulated most of the truly toxic ground rents. The real danger is that by removing the incentive for institutional freeholders, many of which are pension funds, we could push them out of the market altogether.”
Collar-Brown argues that professional freeholders often provide experienced oversight for complex buildings, handling insurance, lift maintenance and major structural works.
“If those entities exit, you could have 100 residents in a block with no prior experience suddenly responsible for running a building. For many leaseholders, paying £250 a year for professional oversight is a price worth paying for peace of mind.”
Another key issue is mortgage availability. Collar-Brown points out that many lenders already apply strict affordability tests linked to ground rent levels.
“Many banks refuse to lend if ground rent exceeds 0.1% of a property’s value,” he said. “On a £200,000 flat, a £250 ground rent still breaches that threshold.
“Unless lenders update their criteria alongside the cap, thousands of flats could remain effectively unmortgageable, despite the reform.”
This raises concerns that the policy could fail to unlock liquidity in the flat market, particularly for lower-value leasehold properties.
The Residential Freehold Association (RFA) has been highly critical of the proposals, warning they represent an unjustified interference with existing property rights.
“The inclusion of a ground rent cap represents a wholly unjustified interference with existing contracts,” an RFA spokesperson said. “If enacted, it will seriously damage investor confidence and send a dangerous signal to the wider institutional investment sector.”
The association argues that ground rents are often held within pension structures, providing stable, low-risk income streams that ultimately support millions of savers.
“By capping them, we aren’t just targeting ‘wealthy freeholders’ – we are impacting the savings of ordinary people,” the spokesperson added.
Scott Goldstein, property litigation partner at Payne Hicks Beach, says the reforms may not have as much practical impact as feared, but they do introduce further complexity.
“There is concern that the £250 cap interferes with long-term freehold investments built up by pension funds,” he said.
He added that the new enforcement framework will further restrict landlords’ ability to take action for unpaid ground rent or small service charge arrears, requiring court involvement instead.
“The government says landlords will be protected by the courts, but this offers little reassurance given court backlogs and staffing shortages,” Goldstein noted.
However, he also points out that reforms introduced in 2002 already made forfeiture in residential cases rare, meaning the legal impact may be more incremental than transformational.
For property investors, the debate highlights a central tension in leasehold reform: improving consumer fairness without undermining the investment structures that support block management, mortgage lending and pension capital.
While the £250 cap may ease some affordability concerns, critics argue that without parallel changes to lender criteria and a clear framework for professional building management, the policy risks replacing one friction point with several others – potentially making flats harder, not easier, to finance and sell in the long run.
