The government has unveiled new proposals to slash ground rents, which it says will save homeowners thousands of pounds.

Housing secretary Michael Gove has launched a consultation that will set out options including capping ground rents at a so called ‘peppercorn’ rate for existing leaseholders, freezing ground rents at current levels and capping the ground rents at a percentage of the property value.

Some leaseholders can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return, and can cause issues for those who want to sell their properties, the government says.

Confirmed as part of the Leasehold and Freehold Bill in this week’s King’s Speech, the Department for Levelling Up, Housing, and Communities will consult on five proposals to decide the best way forward to benefit leaseholders. These are:

  • Setting ground rents at a peppercorn
  • Putting in place a maximum financial value which ground rents could never exceed
  • Capping ground rents at a percentage of the property value
  • Limiting ground rent in existing leases to the original amount when the lease was granted
  • Freezing ground rent at current levels.

The Leasehold Reform (Ground Rent) Act 2022 means that if any ground rent is demanded as part of a new residential long lease, it cannot be charged at more than the cost of one peppercorn per year – effectively setting the rate to zero.

Michael Gove said: “People work hard to achieve the dream of homeownership. They plan, toil, sacrifice, save and should rightly be proud to get on the housing ladder.

“However, far too many are burdened with onerous ground rents – these punitive charges can leave some paying thousands of pounds a year for nothing in return.

“Ground rent can feel like an annual reminder that you do not own the land your home stands on, that your lease on it is finite, and that there is a payment for the privilege of staying there.

“Today we are taking further steps to right that wrong – consulting you, the public, about how best to change this system so leaseholders are not exploited any longer and can take back control of their own destiny.”

The public consultation will be open for six weeks and the government says it will carefully consider all responses to inform the final decision, as it aims to introduce reforms through the Leasehold and Freehold Bill.