UK Government Caps Ground Rents At £250 In 2026 Reform

In a move set to reshape the landscape of home ownership in England and Wales, Prime Minister Keir Starmer announced on January 27, 2026, that the UK government will cap ground rents for leaseholders at £250 ($342) a year. The reform, part of the Draft Commonhold and Leasehold Reform Bill published the same day, aims to tackle longstanding grievances about escalating ground rents and the broader leasehold system—an issue that has affected millions of homeowners for generations.

Ground rents, a relic of medieval feudalism formalized in the 1920s, require leaseholders to pay annual charges to freeholders for the land beneath their homes. For many, these charges have become a financial burden, especially as some leases contain clauses allowing ground rents to rise sharply over time. According to Reuters, the new cap will apply to more than five million leaseholders in England and Wales, offering immediate relief to those facing unaffordable and unpredictable charges.

The government’s plan is twofold: to cap existing ground rents at £250 per year starting in 2028 for a transition period of 40 years, after which all ground rents will be reduced to a nominal “peppercorn”—effectively zero. Starmer, addressing the nation via TikTok, emphasized the significance of the reform. “I’ve spoken to so many people who say this will make a difference to them of hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country. So this is a promise that we said we’d deliver and I’m really pleased that we’re delivering on that promise,” he said, as reported by Mortgage Professional News.

The legislation doesn’t stop at capping ground rents. It proposes to abolish forfeiture—a process by which leaseholders can lose their homes and accumulated equity for arrears as low as £350. Instead, a new statutory enforcement regime will be established, aiming to reset the balance between landlords and leaseholders. The bill also seeks to ban most new leasehold flats, encouraging future developments to adopt commonhold or other ownership structures. This would give homeowners a collective interest in their buildings, granting them formal rights over budgets, management, and major works.

For existing leaseholders, the reforms promise a more straightforward process to convert to commonhold, potentially making it easier to sell, remortgage, or simply feel secure in one’s home. The government estimates that these changes could save many families more than £4,000 over the term of their lease. As Reuters notes, the initiative is designed to “unblock stalled home sales blamed on high or escalating ground-rent clauses,” a problem that has made some flats difficult to sell or refinance.

While the reforms have been welcomed by many leaseholders and consumer advocates, the response from the investment and property sectors has been far more cautious—if not outright hostile. Asset manager M&G plc, which holds £722 million in ground rent assets through its Prudential Assurance Company shareholder fund, announced it expects to take a one-off hit of £230 million from the proposed cap. The company anticipates a reduction of about £15 million in annual adjusted operating profit and underlying capital generation from 2028, as well as a decrease in its Shareholder Solvency II coverage ratio by around one percentage point.

Despite these financial blows, M&G has reaffirmed its commitment to its existing growth and dividend policies. Andrea Rossi, Group Chief Executive Officer, acknowledged the government’s intentions but voiced disappointment at the lack of a compromise. “M&G fully supports the Government’s objective to strengthen leaseholder protection and tackle remaining egregious ground rents. However, we are disappointed that we have not been able to agree a proportionate solution that works for all parties,” Rossi stated, according to Sharecast.

Investor and freeholder groups have gone further, warning that the retrospective cap represents a significant intervention in contract law and could undermine the UK’s reputation as a stable destination for investment. The Residential Freehold Association (RFA) did not mince words, declaring, “The inclusion of a ground rent cap in the draft bill represents a wholly unjustified interference with existing property rights which if enacted, would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.” The British Property Federation echoed these concerns, highlighting the potential impact on pension-fund-backed assets and index-linked investment strategies.

“While we agree that rapidly escalating ground rents should be addressed, the proposed cap will interfere with investments made by pension funds and institutional investors over many years and undermine the government's pursuit of investment in this country,” said Danny Pinder, director of policy at the British Property Federation, as reported by Mortgage Professional News.

On the other side of the debate, consumer groups and housing advocates have largely praised the reforms. Trade body Propertymark welcomed the focus on existing leaseholders, whose ground rent obligations were left untouched by previous reforms. Timothy Douglas, head of policy and campaigns at Propertymark, said, “Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system. It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.” Douglas also highlighted the need for clear guidance and practical support as the sector adapts to the changes.

The reforms build on the Leasehold and Freehold Reform Act 2024, which aimed to increase transparency over service charges, and follow the Renters’ Rights Act, which strengthened protections for private tenants. Together, these measures mark a comprehensive reset of how housing tenure is regulated in England and Wales.

Politically, the move is seen as a fulfillment of Labour’s 2024 election manifesto promise to address unregulated and unaffordable ground rent charges. It also comes at a time when the party is grappling with internal divisions over how best to maintain and rebuild voter confidence following its landslide victory. The reforms are likely to reassure lawmakers who have pushed for greater action on housing affordability and tenant rights.

Looking ahead, the draft bill will now be examined by MPs on the Housing Committee before progressing through Parliament. The government has indicated that, subject to legislative scrutiny and implementation work, the cap could take effect in late 2028. For millions of leaseholders, the prospect of relief from spiraling ground rents is now within sight—though the final shape of the reforms will depend on the outcome of parliamentary debates and negotiations with stakeholders.

As the UK embarks on this historic overhaul, the country finds itself balancing the interests of homeowners, investors, and the broader economy. The outcome will not only redefine property rights for millions but also test the government’s ability to deliver on its promises while maintaining confidence in the nation’s investment climate.