A group of MPs is urging the Government to introduce a cap on the ground rent leaseholders pay freeholders by the end of 2027, citing the unfair leasehold system and the need for an independent regulator for property management agents.
A group of MPs is urging the Government to introduce a cap on the ground rent leaseholders pay freeholders by the end of 2027. In January, the Government announced plans to cap all ground rent s at £250 a year as part of the draft Commonhold and Leasehold Reform Bill.
In the King's speech earlier this month, it was confirmed that this is expected to come into force in 2028. However, a report published by the Housing, Communities and Local Government Committee today recommends the Government brings in the cap by late 2027. Many leaseholders are charged ground rents, though these fees have been banned on all new leasehold flats being sold for the first time since 2022.
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 there is no service given by freeholders in return.
The promise of change: At the start of the year, the Government announced plans to cap ground rents at £250 a year but did not set a date for when the changes would come in The Government's current plan is that, in 40 years' time, the £250 cap will eventually change to become a 'peppercorn' or virtually zero. But the cross-party committee has also questioned that timetable and suggests it be cut to 20 years instead.
The group of MPs also thinks the Government should go further in its legislation by creating an independent regulator for property management agents. Freeholders often appoint managing agents to look after the buildings they own, although some freeholders do this themselves. They are meant to organise cleaning in communal areas, building repairs, safety checks, buildings insurance and any on-site staff costs. For some apartments, it can also include things like a gym and communal gardens.
All of this is charged to leaseholders via service charges. RELATED ARTICLES Share this article Share HOW THIS IS MONEY CAN HELP Many leaseholders complain their buildings are not being maintained to a decent standard, with repairs sometimes taking months or even years to be carried out. Some leaseholders also feel they have little or no control over the budget or the tradesmen used.
Meanwhile, the people that do control the service charge costs - the freeholders or their managing agents - often have no incentive to keep costs down. More than half of leaseholders are struggling to afford service charges, according to a 7,358-strong survey by the Housing, Communities and Local Government committee. It also found that 39 per cent of leaseholders cannot sell or remortgage due to high service charges.
The MPs' report calls for the regulation of property management agents and states that major property management firms have for too long delivered appalling standards of service without consequence. Labour MP Florence Eshalomi, chair of the committee, said: 'Millions of leaseholders have been waiting for too long for successive governments to tackle the unfair leasehold system, cap ground rents, and put homeowners in control of the management of their buildings.
'A growing number are concerned that, without urgent reform, they will be trapped in homes with rising costs, and ultimately unable to sell. 'It is vital the Government now recognises this urgency by bringing forward revised legislation to deliver justice for leaseholders as soon as possible. ' Read More My tenants are refusing my letting agent access for viewings Why is ground rent a problem?
Roughly three in every five leaseholders say that the £250 cap on ground rents would see them pay less each year to their freeholder, according to the survey by the Parliamentary Committee. Ground rents often rise in line with the retail price index inflation rate and change every 10 or 20 years. This means someone who bought a flat with a £600 annual ground rent in 2016 would see their ground rent rise to around £950 this year.
In 10 years it will rise again and they are entirely at the mercy of what happens to inflation between now and then. Other ground rents double every five, 10, or 20 years. Under a 10 year clause, someone paying £600 in 2016 would see that double to £1,200 this year, then in 2036, their ground rent would rise to £2,400 and then to £4,800 in 2046 and so on.
These types of ground rents have become red flags to lenders and often render homes unmortgageable and unsellable. Catherine Williams, founder of the National Leasehold Campaign says: 'A 40-year wait is effectively a"till death do us part" clause.
'It tells leaseholders they will be paying for nothing for most of their adult lives. That cannot possibly be justified.
'Even 20 years is a compromise, but it gives people some realistic hope of seeing change in their lifetime. Forty years does not.
' Harry Scoffin of campaign group Free Leaseholders says that leaseholders must be given greater power to take control over how their buildings are managed. He says: 'The collapse of the flats market requires the government to overhaul the Commonhold and Leasehold Reform Bill so leaseholders can take rightful control of their homes and put a chainsaw through wasteful service charges by choosing local contractors and stripping out commissions paid to freeholders and managing agents through easier routes to Right to Manage and freehold purchase.
'Our supporters are already trapped in homes that are unmortgageable and unsellable, with nearly 40 per cent of leasehold flats suffering service charges exceeding 1 per cent of property value, according to Hamptons. 'Without major improvements to this Bill, Starmer’s painful incrementalism is putting the property mafia before the people.
' Best mortgage rates and how to find them Mortgage rates have shot up again due to inflation triggered by the conflict with Iran reversing hopes that the Bank of England would cut rates. This means those remortgaging or buying a home face higher costs. That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord.
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