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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, who had been concerned about the impact on institutional investors.
Ministers will announce on Tuesday morning that the cap will be set at £250 a year for each property, according to figures familiar with the situation.
Steve Reed, housing secretary, had drawn up the proposals, which were first promised in the Labour general election manifesto in 2024. But Reeves, under pressure from investors who fear that the changes will lower the value of their property portfolios, had been pushing back on the plans for weeks.
The previous Conservative government had already cracked down on soaring ground rents paid on new-build properties. Nicknamed “fleeceholds”, there have been examples of ground rents doubling every 10 years.
Some owners have found it difficult to sell their properties or obtain mortgages on them because of increasing ground rents.
The Tories passed a leasehold reform act in 2022 that meant new-build ground rents could only be set at “peppercorn” rates, a nominal sum that meant zero financial value. Another leasehold act in 2024 gave tenants the right to extend their standard leases to 990 years, again on peppercorn rates.
In its manifesto Labour promised to go further by applying limits to existing houses and flats to tackle “unregulated and unaffordable” ground rent charges.
The Residential Freehold Association, which represents 10 of the biggest landlords that together own a total of about 1mn leasehold properties, has previously warned that restricting ground rents “would represent an unprecedented and unjustified interference in existing property rights, and would seriously damage investor confidence in the UK housing market and in the wider institutional investment sector which benefits from a stable legal framework”.
The RFA estimates that pension funds have invested more than £15bn in residential ground rents, which are seen as stable, long-term predictable income, and that the total value of investment in UK ground rents exceeds £30bn.
Angela Rayner, the former deputy prime minister and housing secretary, intervened last week urging Starmer to back the proposals. She argued that the government’s own estimates suggested there would only be a minor impact on investors.
In December 2023 the housing ministry said pension funds held less than 1 per cent of assets in residential property.
Ministers had hoped to publish a draft bill implementing the changes in December, but a last-minute Treasury intervention delayed those plans.
Earlier this month Rayner said investors were getting an annual return for “doing absolutely nothing” and could lift ground rents and service charges regardless of the “devastation” caused to tenants.
“Labour made a promise to leaseholders that we would fix this injustice, but ministers are currently subjected to furious lobbying from wealthy investors trying to water this manifesto commitment down,” she said.