Leasehold Reforms to Cap Ground Rents and Ban New Flats

These reforms target the ongoing housing crisis, particularly in densely populated areas like London, by promoting a more equitable ownership model.

The commonhold model, widely adopted internationally, is being championed as a viable and fairer alternative to the traditional leasehold system.

A government consultation focused on the commonhold system is currently underway, with submissions due by April 24.

The proposed £250 annual cap on ground rents has drawn sharp criticism from the Residential Freehold Association (RFA).

The RFA contends this cap is unjustified and warns it could undermine investor confidence within the UK housing market.

The association further argues the cap constitutes a 'wholly unjustified interference with existing property rights' that risks damaging the UK's reputation as a secure investment destination.

Additionally, the RFA raised concerns that removing professional freeholders could disrupt essential building safety initiatives and negatively affect residents' daily lives.

M&G echoed these warnings, describing the proposed changes as disproportionate and cautioning of adverse effects on savers and companies with UK assets.

The firm warned these reforms could trigger significant one-off hits to company profits, while Treasury officials noted potential impacts on pension fund investments.

In contrast, the National Leasehold Campaign (NLC) disputes the assertion that capping ground rent will deter pension funds, stating such claims lack supporting evidence.

Omer Mehmet, Managing Director at Trinity Finance, highlighted that excessive ground rents have historically distorted property values and created significant obstacles for sales.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, corroborated this, noting that escalating charges have made selling homes increasingly difficult.

She pointed out that some mortgage lenders now refuse to provide financing for properties burdened by clauses that allow ground rents to double.

These proposed reforms follow sustained pressure from backbench Members of Parliament, including former deputy prime minister Angela Rayner.

Rayner previously stated that failing to address the inequities of the leasehold system could lead to a significant erosion of public trust in government.

Harry Scoffin of Free Leaseholders acknowledged the ground rent cap as a positive step, though he suggested it may not represent the comprehensive victory initially presented.

The government's long-term objective remains the complete eradication of the leasehold system to pave the way for widespread commonhold ownership.