Dave Pickett bought his first home in 2019, and remembers feeling overwhelmed by the complexity of his leasehold agreement.
When purchasing the leasehold for his maisonette in Hitchen, Hertfordshire, he said he knew there was a ground rent – an annual fee paid by a leaseholder to the freeholder – of £25 per year.
But a few months later, the 33-year-old communications professional received a letter saying the fee should have been reviewed in 2018, and he could expect it to go up by between £2,000 to £3,000 per year.
Following a lengthy arbitration, in 2023 it was ruled he and others in his block would have to pay £2,350 per year – a 9,400 per cent increase in ground rent from when he purchased his home. Not only that, but the arbitrator chose to backdate the increase to 2018, leaving Mr Pickett with a £17,000 bill to pay.
On Tuesday, the government announced it would cap ground rents paid by leaseholders at £250 per year in England and Wales as part of major changes to home ownership.
Mr Pickett said for those in his block, the cap is “the best news ever”.
“Not only does it help with the financial cost every year, but it also opens the pathway for us to buy the freehold and take back control of our units,” he said. “I’m very positive about it.”
Around 4.83 million homes in England are leasehold, meaning the owners own the right to occupy the property from the freeholder for a certain number of years. Ground rents are usually paid each year and are often subject to increases by RPI inflation at fixed intervals.
“As a first-time buyer, the complexity around leasehold and marriage value is so overwhelmingly complex,” he said. “There was no support.”
Mr Pickett said the ground rent in his block made the flats “unsellable”, adding a report he commissioned found the value of his property would have decreased by around £30,000 on the open market if he had decided to sell.
The 33-year-old eventually opted to pay for a lease extension, but said the changes introduced as part of the draft Leasehold and Commonhold Reform Bill are “a step in the direction of bringing some parity back between freehold and leasehold”.
‘It’s hard to stomach’
Not everyone feels so positive about the reforms.
Pensioner David Riddell, 66, lives in Hendon, northwest London. He pays around £226 per year in ground rent, meaning he will not benefit from the cap.
He said while some will undoubtedly benefit from the change, he found the announcement “hard to stomach” after Labour’s manifesto promise to abolish leasehold entirely.
Mr Riddell pointed out that, according to estimates by the English Housing Survey in 2023/24, leasehold owner-occupiers reported paying an average annual ground rent of £304 a year, meaning the average benefit of the policy is likely to be around £54 per year.
“My local MP posted saying it will ‘change people’s lives’,” he said. “But even people who will benefit will only benefit by an average of £54.
“That’s better than nothing, but it won’t change lives.”
He criticised the plan to reduce ground rents to a “peppercorn rate” in 40 years’ time.
“I’ll be 107 by then, so I look forward to that,” he said. “The spin on it makes me so angry.”
Mr Riddell said he is paying around a £250 service charge per month, which he “would really like to see something done about”.
“What they promised at the election and what they announced today is chalk and cheese,” he added.
Making the major announcement in a video posted on TikTok, prime minister Sir Keir Starmer said: “I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds.
“That’s really important because the cost of living is the single most important thing across the country.”
Critics from the Residential Freehold Association, which is the trade body representing professional freeholders, said the ground rent cap was “wholly unjustified” and warned about its impact on the UK’s reputation for investors.
It said the ground rent cap would damage investors’ confidence in the UK housing market due to freeholders losing “long-established” contractual rights.
“The resulting forced exit of professional freeholders from the sector will hinder building safety projects and disrupt the day-to-day lives of residents,” it added.
The National Leasehold Campaign (NLC) said it was “disappointed” the government did not enforce peppercorn ground rents immediately, but acknowledged the “relief” the £250 cap will bring.
“We have campaigned for peppercorn ground rents and an end to this abusive system for years” said Katie Kendrick, children’s nurse and co-founder of the NLC. “Whilst today’s announcement on ground rents falls short of immediate peppercorn ground rents, this bill as a whole is another step forward in dismantling the leasehold system in England and Wales.”