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The UK is set to cap ground rents paid to freeholders on existing properties, after Sir Keir Starmer overruled Chancellor Rachel Reeves’ decision, who was concerned about the impact on institutional investors.
Ministers will announce on Tuesday morning that the cap will be set at £250 per year for each property, according to figures familiar with the situation.
Housing Secretary Steve Reed prepared the proposals, which were first promised in the Labor general election manifesto in 2024. But Reeves, under pressure from investors who feared the changes would reduce the value of their property portfolios, had been pushing for the plans for several weeks.
The previous Conservative government had already cracked down on the rising ground rents paid on new-build properties. Nicknamed “fleeceholds”, there are examples of land rents doubling every 10 years.
Rising ground rents have made it difficult for some owners to sell their properties or obtain mortgages on them.
The Tories passed a Leasehold Reform Act in 2022, which meant ground rent for new construction could only be set at “peppercorn” rates, a nominal amount that meant zero financial value. Another Leasehold Act in 2024 gave tenants the right to extend their standard leases to 990 years at peppercorn rates.
In its manifesto Labor promised to move forward by introducing a cap on existing houses and flats to tackle “irregular and ineffective” ground rent charges.
The Residential Freehold Association, which represents the 10 largest landlords, who together own almost 1 million leasehold properties, has previously warned that restricting ground rents “would represent an unprecedented and unjustified interference with existing property rights, and would seriously damage investor confidence in the UK housing market and the wider institutional investment sector which benefits from a stable legal framework”.
The RFA estimates that pension funds have invested more than £15 billion in residential ground rents, which are seen as providing stable, long-term predictable income, and the total value of investments in UK ground rents is more than £30 billion.
Former deputy prime minister and housing secretary Angela Rayner intervened last week to urge Starmer to support the proposals. He argued that the government’s own estimates suggest there will be only a minor impact on investors.
In December 2023, the Housing Ministry said pension funds held less than 1 percent of their assets in residential property.
Ministers had hoped to publish a draft bill implementing the changes in December, but last-minute Treasury intervention delayed those plans.
Earlier this month Renner said investors were getting annual returns for doing “absolutely nothing” and could write off ground rents and service charges without worrying about the “devastation” caused to tenants.
“Labor promised leaseholders that we would fix this injustice, but ministers are currently facing fierce lobbying from wealthy investors who are trying to undermine this manifesto commitment,” he said.
