Ban on rip-off ground rent comes into force today – how it affects you explained

Property buyers who purchase a new leasehold home from today will no longer have to pay ground rent, thanks to a new ban that has come into force.

Ground rent is a charge that many leaseholders have to pay to a freeholder for renting out the land where they live.

It can pay for maintenance work on the house and grounds - however, it is often considered a rip-off fee meant to make money for freeholders.

The cost of this can run into hundreds of pounds each year - meaning the change in the law will result in huge savings for homeowners.

In the UK, leasehold property owners are paying an average of £319 in ground rent costs every year - totalling £447million.

The Leasehold Reform (Ground Rent) Act comes into force from today (June 30) and applies to anyone buying a new leasehold property.

It will only cover existing leasehold homeowners who take out an informal lease extension - but through this method, there are no set terms the freeholder has to give you.

The Government has promised a second law to help people already living in leasehold properties.

Ministers have acknowledged that ground rent charges “provide no clear service in return and can be set to escalate regularly”.

Leasehold Minister, Lord Stephen Greenhalgh said: “This is an important milestone in our work to fix the leasehold system and to level up home ownership.

“Abolishing these unreasonable costs will make the dream of home ownership a more affordable reality for the next generation of home buyers.

“I welcome the move from many landlords who have already set ground rent on their new leases to zero and I urge others to follow suit ahead of this becoming law.”

Further changes to ban ground rent on retirement homes will come into place in April 2023.

There are estimated to be 4.6 million existing leasehold properties - mainly flats - in England and Wales.

The ground rent ban doesn’t apply in Scotland or Northern Ireland as there are different rules in places.

What is the difference between leasehold and freehold?

If you own the freehold of the property, you own the building and the land it is built on.

For a property where you purchase the leasehold, you own only the building - not the land it is on.

You can still choose to extend your lease even with these new rules.

It is important to keep an eye on how long you have left, as this becomes expensive to do once it gets below 80 years.

Having a short lease can also make it more difficult to sell or remortgage your property.

You can also still try to buy the freehold of your property.