Experts have warned some pensioners could lose out because of the change.
PM Sir Keir Starmer (Image: Getty)
Sir Keir Starmer has been warned his plan to introduce a cap on ground rents for leaseholders could have an impact on pensions. City firms have expressed concerns the move to set a cap at £250 a year may affect pension schemes investing in real estate.
The change in England and Wales is part of Labour plans to overhaul the leasehold system, however one of the UK’s biggest saving and investments firms sounded alarm over the proposals. M&G warned of a £230 million one-off hit from the plans, arguing the changes were “disproportionate” and would “negatively impact savers and companies that have chosen to invest in UK assets”.
It said it was expecting an approximately £15 million hit to its annual adjusted operating profit once the proposed changes take effect, although stressed it was “well positioned” to deal with this.
File image of flats in London (Image: Getty)
Experts have warned some pensioners could lose out because of the change.
Jennifer Crichton, senior wealth planner at Killik & Co, told the Daily Mail for some pension funds “the long-established ground rents system may have been relied upon too heavily”.
Ground rent is the fee leasehold homeowners pay for the land beneath their buildings.
This is paid to a freeholder who owns the building and the land it is built on.
A spokesperson for the Association of British Insurers (AB) also voiced reservations over the plans.
They 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.”
Danny Pinder, from the British Property Federation, added: “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.
“The various documents published by the Government today make clear that these changes will have an impact on freeholders —the value of their assets and their ability to match index-linked pension liabilities — but that they intend to proceed, nonetheless.”
The Residential Freehold Association (RFA) — a trade body representing professional freeholders — said the ground rent cap is “wholly unjustified”.
A spokesperson said the cap “would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector”.
The PM said people told him the change will ‘make a difference to them worth hundreds of pounds’ (Image: Getty)
Others supported the move, including the Association of Leasehold Enfranchisement Practitioners which said the draft bill is a step towards modernising tenure structures in England and Wales.
Paula Higgins, chief executive of HomeOwners Alliance, said: “The financial sector and vested interests should now step aside and allow these reforms to go unchallenged. Time has been called on treating homeowners as a lucrative income stream.”
Ministers estimate about 770,000 to 900,000 leaseholders pay more than £250 a year.
Last year alone, leaseholders paid more than £600 million in ground rents and they are expected to save up to a combined £12.7 billion in total over the entire lease term due to the cap, according to the Government.
The ground rent cap could come into force in late 2028.
Under the draft Commonhold and Leasehold Reform Bill, ground rent will be capped at £250 a year and be reduced effectively to zero after 40 years.
The Government said the shake-up will see many leaseholders save more than £4,000 over the course of their lease, with more than five million leaseholders and future homeowners benefiting from stronger control, powers and protections.
