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Millions of tenants across the country England Wales will benefit from reforms to the tenancy system, with ground rents capped at £250 per year.
The restructuring will see many tenants save more than £4,000 over the course of their tenancy and more than five million tenants and future homeowners will benefit from greater control, power and protection, government explain.
The move signals that residential tenants will no longer have to pay extra for no clear return on services and will also make selling their homes easier for those who are struggling because of ground rent clauses that make it difficult to sell their homes.
But the news also raised concerns about the impact on investor confidence in the housing market.
Savings and investment firm M&G warned on Tuesday that the scheme would cause a one-off loss of £230m.
The company argued that the changes were “disproportionate” and would “negatively impact savers and companies who choose to invest in UK assets”.
M&G also said it expected an impact of around £15m on its annual adjusted operating profit once the proposed changes come into effect, although the company stressed it had “the ability to absorb and manage the negative impact of this proposed legislation”.
Depending on the council’s timeline, the ground rent cap could come into effect at the end of 2028.
Under the draft Common Ownership and Tenancy Reform Bill, ground rents would be capped at £250 a year, effectively reducing to zero after 40 years.
New rental apartments will be banned and existing tenants will have the right to convert to apartments, giving homeowners greater control over their properties.
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Homeowners will gain a stake in the ownership of their buildings and have a greater say in issues that affect them, with greater control over how buildings are managed and billed, the government said.
The confiscation system will also be abolished, whereby tenants can lose their homes and the equity they have built up by defaulting on debts of as little as £350.
The Prime Minister made the announcement in a video on TikTok Keir Starmer Said: “I’ve spoken to a lot of people who said it would make a difference worth hundreds of pounds to them.
“That’s very important because cost of living is the most important thing in the country.”
The move comes after backbenchers including the former deputy prime minister Angela Reiner The government is urged to stick to Labour’s manifesto pledge to tackle “unregulated and unaffordable ground rent charges” amid fears the move could impact pension funds.
Writing in the Guardian earlier this month, she said ministers were “heavily lobbied by wealthy investors” to water down the pledge, warning that people could lose confidence if the party failed to address “glaring injustices” through the cap.
Labor MPs have previously urged ministers to take further steps to scrap the system altogether, bringing an end to new rental apartments.
Secretary for Housing Steve Reed said: “If you own a flat you could be forced to pay ground rent that is completely unaffordable. We said we would stand with renters – that’s why today we’re capping ground rents – helping millions of renters save money and give them control of their homes.”
The Residential Freehold Association (RFA), the trade body representing professional freehold holders, said the ground rent cap was “completely unreasonable”.
A spokesman for the RFA said the cap “will severely damage investor confidence in the UK property market and send a dangerous and unprecedented signal to the wider institutional investment community”.
“Rather than focus on reforms that address tenants’ biggest concerns, the government’s draft bill will tear up the long-established contracts and property rights that are the backbone of the UK’s investment reputation,” the report said.
Around 3.8 million leasehold properties in England and Wales have ground rent obligations, which give people the right to occupy the property through a freeholder lease for a limited number of years.
Unlike a service charge, the freehold owner does not need to provide services in exchange for this payment.
The government estimates that between 770,000 and 900,000 tenants pay more than £250 a year, with 490,000 to 590,000 living in London and the South.
According to the government, lessees paid more than £600m in ground rent last year alone and are expected to save a total of up to £12.7bn over the life of their leases as a result of the cap.
Since 2019, the Competition and Markets Authority (CMA) has been leading a crackdown on mis-selling of rental properties in breach of contract terms under consumer law, with investigations involving major housing developers and freehold owners.
CMA chief executive Sarah Cardell said: “Our action has saved thousands of homeowners from having their ground rents doubled and we have long supported capping ground rents to ensure all tenants get the fair deal they deserve.”
Timothy Douglas, head of policy and campaigns at property specialist body Propertymark, said: “We know from research of Propertymark member agents that rental properties with rising ground rents will be difficult to sell, even if priced correctly.
“Addressing ground rent issues for existing tenants is a key step towards a fairer tenancy regime. It puts existing tenants on an equal footing with new tenants and tackles one of the biggest barriers to selling leasehold properties.”
Chris Norris, chief policy officer at the National Residential Landlords Association (NRLA), said: “Around a quarter of all rental properties are in the private rented sector. Given this, the greater certainty provided by today’s announcement is welcome.”
“In particular, a cap on ground rents will enable landlords to plan for future expenditure and business costs more effectively.”
The Association of Leasehold Chartered Practitioners (Alep), a group of specialist solicitors, valuers and managing agents, said the draft bill was a step towards modernizing the tenure structure in England and Wales.
“The ownership structure underpins how communities are managed, maintained and accountable, and reform is long overdue,” said Mark Chick, director at Alup and senior partner at Bishop & Sewell LLP.