The Government has announced a “major shake-up” to the leasehold system in England and Wales. Here is a look at how the plans will work and the potential wider impacts:

– What are ground rents?

They are fees paid by leaseholders to occupy land that someone else owns. The fees often applies to flats, but can also apply to houses. Leases may generally set out how much people pay, how often, and how increases may be calculated.

– What has the Government said about them?

In a video posted on TikTok, Prime Minister Sir Keir Starmer said there is “good news for homeowners” as ground rent will be capped at £250 a year.

He said: “That means if you are a leaseholder, and your ground rent is more than £250, you’ll be paying less.”

– Will leaseholders have to pay £250 a year indefinitely?

After 40 years, the cap will be cut to a “peppercorn,” so nothing needs to be paid.

– How many people will benefit?

The Government said more than five million leaseholders and future homeowners will benefit from stronger protections, with many seeing savings of over £4,000 over the course of their lease.

– How else could leaseholders be better off under the changes?

Under the plans, it will also be easier for existing leaseholders to switch to commonhold, where the majority of residents agree to it. This could give those living in the building more control over how it is managed and the size of the bills.

A rule which means that people can lose their home and equity by defaulting on a debt as low as £350 will also be abolished.

– What about home buyers in the future?

The Government has said new leasehold flats will be banned. In future under the plans, new flats will be built as commonhold and developers will no longer be allowed to sell new flats as leasehold, except in limited cases. This means that a new buyer will own the ground their flat is built on and the overall building with their neighbours.

– What could the wider impacts be for the home sales market?

It could make some homes easier to sell on, as buyers will not have the worry of ground rents spiralling.

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Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, said: “Escalating charges have made it difficult for leaseholders to sell their homes, because some mortgage companies refuse to lend on a property with a doubling ground rent clause written into the lease.

“The prospect of allowing leaseholders to convert to commonhold, where homeowners jointly own both the building and the land it sits on without an expiring lease. is another positive step.”

Although Ms Haine also suggested that, when the reforms come into force, “they could prompt a short-term surge in supply from homeowners eager to offload property they have previously been unable to sell – potentially exerting some downward pressure on prices in pockets of the market”.

– When will the changes be introduced?

A parliamentary bill to make the changes is in draft stage and will now move into pre-legislative scrutiny. Subject to parliamentary timings, the Government expects that the ground rent cap could come into force in late 2028.

– Are there concerns that other organisations or groups of people could be affected?

There are concerns that investment firms, such as those involved in pension funds, may be put off the UK housing market by the cap.

Savings and investment firm M&G has warned of a £230 million one-off hit from the plans.

The company argued that the changes would “negatively impact savers and companies that have chosen to invest in UK assets”.