Proposals for ground rents to be capped and a ban on sale of future leasehold flats

poseidon1

Hot off the press today, and of interest to existing and future flat holders alike -

https://www.theguardian.com/money/2026/jan/27/leaseholders-england-wales-ground-rent-cap-250-a-year#:~:text='If%20you%20are%20a%20leaseholder,them%20of%20hundreds%20of%20pounds.

On the flip side institutional investors such as pension schemes are chaffing at the major hit to the value of their freehold reversion assets and the significant drop in rental income this heralds - see below

https://www.moneymarketing.co.uk/advisers/mg-warns-of-capital-hit-from-ground-rent-cap/#:~:text=Momodou%20Musa%20Touray%2027%20January,already%20held%20against%20regulatory%20risk.

monkey-fingers

I haven't read the Grauniad's article - I tend to prefer the facts (in the same way I wouldn't read the article on the Daily Mail's page either).

However, reading Reuters and the BBC's take on it, I get the impression that it's been capped at £250 to keep most people happy. The original presentation was that it capped it at peppercorn rent which would hurt everyone. There's also a clause in there to bring it down to peppercorn over 40 years.

Clearly, the Freehold Alliance folks are frothing - as I'd expect them to be.

The other interesting piece is about commonhold. Suffice to say that the mortgage companies are bracing themselves a little today with this being confirmed.

For those of you who don't know, around 1/3 of mortgage companies will mortgage a commonhold property. Most of the specialist lenders won't touch them. But with the Government pushing forward, they are going to have to rethink their strategy and guidance.

What that means, clearly, we don't know. But speaking to someone at lunchtime, whilst it was always in the previous draft, it seems to be coming as a surprise.

HelpfulLittleHelper

And suddenly the maintenance fee goes up significantly I bet to compensate the 'loss of income from ground rent' with some more admin fees.

ReadySteadyPop

https://forums.moneysavingexpert.com/discussion/comment/81856759#Comment_81856759

Yep, so these flats are still basically unsellable now?

Grumpy_chap

The thing I don't understand here is how this applies retroactively to existing leasehold agreements.

I understand that there may not have been equal bargaining power at the outset and some of the more recent lease agreements were aggressive in the way ground rents increased. Ultimately, though, there was a contractual agreement in place.

Party A owns land with a building, let's say worth £500k. Could simply sell to Party B for £500k.

OR could rent the whole lot to Party B at, say £1,500 per month, £18k per year.

OR. sell the use of the building for 125 years to Party B, let's say £450k but retain ownership of the freehold and charge Party B some nominal rent for the use of the land for that 125 year period, say £500 per year.

If things progress based upon the third option, Party A could sell the freehold and the right to the £500 per year to Party C if they wished. After the 125 years, the property all reverts back to Party A (or Party C if sold in the meantime). The value of that freehold that could be sold from Party A to Party C is determined by the underlying value (£50k) plus the time until the whole lot reverts plus the value of the remaining £500 ground rents to be received.

Now, the Government is changing things so that where the third option was taken, the ground rent for the remaining period is reduced from £500 to £250 per year. This would mean that the value of the freehold if sold from Party A to Party C would be reduced. Does someone have to compensate Party A for their loss?

Obviously the leaseholder is happy and won't provide that compensation.

This is not a remote consideration as the "Party A" is more often than not the pension funds of little people, including leaseholders.

user1977

https://forums.moneysavingexpert.com/discussion/comment/81856823#Comment_81856823

Obviously we have no detail yet, but if the ground rent is being reduced for the benefit of the leaseholder then yes they will need to compensate the freeholder, so there'll be some sort of compulsory formula to do that, and I would expect it there to be transitional arrangements so it only needs to occur on the next significant transaction (not millions of people varying their leases on the same day).

We did similar in Scotland decades ago when feuduties were abolished.

Grumpy_chap

"

they will need to compensate the freeholder, so there'll be some sort of compulsory formula to do that,

"

So we will all pay for this?

user1977

https://forums.moneysavingexpert.com/discussion/comment/81856875#Comment_81856875

Who did you think was paying for it?

There's going to be a shift in the value of the properties from the freehold to leasehold - so obviously the leaseholders will be paying more at some point.