The government has announced plans to cap ground rents and overhaul leasehold rules as part of efforts to address the cost of living crisis – but the move could affect pension schemes investing in real estate.
Prime minister Sir Keir Starmer announced today (27 January) that ground rents would be capped at £250 a year and become so-called “peppercorn” rents after 40 years.
Other changes proposed in the draft Commonhold and Leasehold Reform Bill, which was laid before parliament this week, include a ban on new leasehold flats and the scrapping of forfeiture, which can see people evicted from homes with debts as low as £350, according to the government.
“We are deeply concerned that retrospective changes to existing property rights set a troubling precedent and undermine confidence in contract certainty.”
Association of British Insurers
However, the Association of British Insurers has said it is “deeply concerned” about some of the changes, which are set to be retrospective.
A spokesperson for the insurance trade body said: “We support proportionate leasehold reform, but pension funds – like the rest of the financial services industry – require predictable and stable rule of law if they are to have the confidence to invest.
“We are deeply concerned that retrospective changes to existing property rights set a troubling precedent and undermine confidence in contract certainty. It is likely to raise the risk premium that investors attach to the UK and could weaken its appeal as a destination for global capital and the domestic market.”
Balraj Birdi, real estate partner and head of living investment at Eversheds Sutherland, said the ground rent cap “effectively removes long‑standing contractual rights that pension funds and ground‑rent investors have relied on, reducing asset values overnight and raising questions about future investment in new housing”.
Birdi added: “The direction of travel is a move away from leasehold towards a commonhold‑style system, but the bill carries real risk of unintended consequences. The challenge now is finding a balance that protects leaseholders without undermining the investment needed to deliver future homes.”
Steve Reed, the housing minister, said the bill would help “millions of leaseholders by saving them money and giving them control over their home”.
He stated: “The leasehold system has tainted the dream of home ownership for so many. We are taking action where others have failed – strengthening home ownership and calling time on leasehold for good.”
