Leasehold flat owners claim their homes remain a ‘toxic’ asset despite the Government’s proposal for a £250 annual cap on ground rents.
The Prime Minister, Keir Starmer, announced the cap as part of the draft Commonhold and Leasehold Reform Bill yesterday, but it is not likely to become law until at least 2028.
Leaseholders pay ground rents to their freeholder for the ‘right’ to occupy the land their home is built on. Some see it as controversial as it is a nominal charge and there is no service given by freeholders in return.
The Government’s plan is that, in 40 years’ time, the £250 cap will change to become a ‘peppercorn’ or virtually zero.
However, some leasehold property owners say the cap won’t save them from what they describe as ‘toxic’ homes. They say homeowners are still being held to ransom by freeholders and managing agents via ever-increasing service charges and hidden insurance commissions.
Many bought leasehold flats as a stepping stone on to the property ladder. Now, years later, they are finding their homes have lost value, and in some cases, are not even possible to sell.
Prime Minister Keir Starmer says the cap will save some families hundreds of pounds
‘Ground rent is just the start of my problems’
Joe Douglas, 35, bought his two-bedroom flat in North London in 2015 for £262,000 using the Help to Buy scheme.
For Joe, ground rent is the least of his worries. His flat remains unsellable and unmortgageable because it was found to have potentially unsafe cladding. Works to remedy this are ongoing.
Joe is now letting the property out, and living in the one-bed flat his wife owned before they got married. All Joe’s money is tied up in the flat, meaning the couple cannot afford to buy anything else.
‘I’ve wanted to sell the flat for six years,’ he says. ‘It’s essentially worthless with the cladding situation. My wife and I are currently living in her one-bedroom flat but we need somewhere bigger.’
Property ladder: Joe Douglas bought his two-bedroom flat in North London in 2015 for £262,000 using the Help to Buy scheme
Joe currently pays £330 in ground rent to his freeholder although this increases in line with RPI every five years. The ground rent began at £250 and increased in 2022. The next review is scheduled for 2027 and Joe estimates it will rise to more than £400 given the surge in inflation.
While he sees the £250 cap as progress, he does not feel it will change conditions for most leaseholders.
‘The financialisation of our homes should have never been allowed to happen in the first place, says Joe.
‘Yes, the cap is a start, but ground rents are just the overt way freeholders take our money.
‘They also covertly take our money through hidden commissions and fees and they will continue to rip people off regardless of ground rent.
‘Leasehold is absolutely toxic because these third party freeholders are essentially charging money for nothing and ramping up costs in any way they can.’
‘I’ll be 97 before ground rents are phased out’
Phil Jones, 57, a leaseholder of a two bedroom flat in Westcliff-on-Sea in Essex welcomed the news.
His ground rent is subject to a ‘doubling clause’ which means it doubles in size at set intervals. It recently doubled from £250 to £500 and is set to go to £1,000 in 2033.
For Phil, the ground rent cap will be a lifeline, as the ‘doubling clause’ has meant he could neither sell nor get a new mortgage.
Phil Jones, 57, a leaseholder of a two bedroom flat in Westcliff-on-Sea in Essex recently saw his ground rent double from £250 to £500
‘I extended my lease in 2013 to 115 years at the cost of £15,000 with the ground rent set at £250 per year,’ he explains.
‘The freeholder slipped in the onerous ground rent clause, which doubles every 10 years. This was not brought to my attention by my solicitors.
‘So in 2023 I got a bill for £500 and only then did I know what situation I was in.
‘I asked the freeholder if we could either remove or cap the ground rent and they then informed me that I could remove it for £60,000 fee.’
But while he says the £250 cap is a positive step, Phil argues the Government needs to do more to help leaseholders.
‘In truth I feel like a renter, not a homeowner,’ he says. ‘I still have a lease that is running down and a freeholder looking to make money out of me.
‘Ground rent should be peppercorn in line with new leases and not phased out over 40 years. I’ll be 97.
‘I’m also very worried about it not being introduced until the end of 2028 and whether the reforms will end up happening before the next general election – so just more worry, stress and uncertainty ahead.’
Aside from the ground rent cap, the government’s draft Commonhold and Leasehold Reform Bill, published today will aim to make it easier for existing leaseholders to convert to commonhold and ban the use of leasehold for most new flats.
The bill also promises to end the threat of forfeiture, which is where a freeholder can effectively take back a leaseholder’s home and claim all their equity if they fail to pay their service charge. It will also abolish estate charges on housing estates.
Freeholders claim the reforms are unfair because they will harm their financial interests and could lead companies who make their money through owning freehold properties to collapse, as well as wipe out investments held in pension funds.
A spokesperson for the Residential Freehold Association said: ‘Retrospective interference with ground rents risks the widespread insolvency of professional freeholders.
‘That means that a retrospective cap would immediately remove professional oversight from large complex residential buildings.’
They also said that, if freeholders became insolvent, their responsibilities under the Building Safety Act would be passed to leaseholders, and insurance policies would also lapse or default, leaving millions of homes uninsured and immediately unmortgageable.
What other charges do leaseholders face?
While capping ground rents will help many leaseholders, it may just end up incentivising freeholders to recoup costs from elsewhere, such as through service charges and insurance premiums.
Many leaseholders have reported service charges spiralling into many thousands of pounds per year.
These are annual fees that cover things like cleaning, repairs and bills in communal areas such as hallways; safety checks; buildings insurance and the services of the managing agents. For some apartments, it can also include things like a gym, concierge and parking.
Service charges have increased by an average of 41 per cent between 2019 and 2024, according to The Property Institute. It says the average leaseholder is now paying £3,634 per annum.
Buildings insurance is also a big factor in rising service charges.
Between 2019 and 2024, average building insurance costs for leaseholders in blocks taller than 18 metres rose 92 per cent, according to the Property Institute. Those in buildings below 18 metres saw premiums rise 69 per cent.
It said the utilities element of service charge bills had risen 73 per cent, professional fees were up 69 per cent, health and safety costs were up 40 per cent, on-site staff costs had risen 37 per cent and repair and maintenance costs were up 36 per cent.
Some of these added costs are a result of changes freeholders or managing agents must make to comply with the requirements of the Building Safety Act, introduced in the wake of the cladding scandal.
A spokesperson for the Residential Freehold Association told This is Money: ‘The introduction of the Building Safety Act and cost of complying with the new regime has led to rising charges for leaseholders, including average costs incurred rising from just over £5,000 in 2023, to an average of over £28,000 in 2024.’
Buildings insurance premiums for leaseholders can also include commissions which are split between the freeholder and the insurance broker.
This creates a potential conflict of interest, and could drive up costs.
In 2022, a Financial Conduct Authority investigation found that the sharing of remuneration by brokers, freeholders and property managing agents was widespread, happening 68 per cent of the time.
There are also other fees commonly charged to leaseholders by freeholders or their managing agents. For example, for making any alterations or subletting their flat.
David Fell of estate agent Hamptons says: ‘Things like increases in building insurance, additional fire safety regulations, uncapped communal heating charges and the cost of labour have really been directly passed on to owners.’
Leasehold campaigner Harry Scoffin says service charges have become big business in recent years and in some cases leaseholders are being exploited.
‘Where they are not subject to democratic resident control, third-party landlords use them as a profit centre,’ he says.
‘Secret insurance commissions are perhaps the best known example, but insurance is, of course, just one line item of a service charge budget.
‘For as long as leaseholders do not control the management of their building, financial abuse such as this will flourish.’
No control over costs: Service charges have increased by an average of 41%between 2019 and 2024, according to the The Property Institute
Will the ground rent cap boost the flat market?
The severity of the leasehold problem is perhaps best shown by the fact that flats – many of which are leasehold – have become a problem area of the housing market.
Almost two in every five flat sellers who had previously bought new build flat at any time in the last 20 years sold for a loss in 2025, according to Land Registry data analysed by Hamptons.
It means owners of new build flats are six times more likely to sell at a loss than owners of new build houses.
Meanwhile, owners selling more traditional older flats are almost five times more likely to sell at a loss than the owners of houses.
For every leaseholder unable to move or that sells at a loss, experiences will be shared with friends and family members and buyers will not want to repeat past mistakes.
This will have knock-on effects for the rest of the housing market. Would-be upsizers will not be able to move up the ladder if they cannot sell their flat, meaning there will be fewer buyers for ‘second-stepper’ homes.
Flats are also popular among older downsizers, so this market would be affected, too.
Buying agent, Jonathan Hopper says: ‘The Government needs to drive market behaviour. If it’s deemed financially beneficial to buy a leasehold flat again, then that will change things.’
Harry Scoffin believes a ground rent cap won’t change things. The only way to fix the collapse of the flat market, in his opinion, is for the government to end leasehold for once and for all.
‘The first and last rungs of the property ladder are broken because of leasehold, for first-time buyers and elderly downsizers,’ he says.
‘The only way to make flats attractive is to end leasehold in a mass shift to commonhold, as is the position everywhere in the world except England and Wales,’ he says.
‘If you buy your home, you must be able to own and control it.’
