Leasehold Bill to hand £8.7bn windfall to buy-to-let landlords, new analysis finds

The Government’s proposed £250 cap on ground rents would deliver an estimated £8.7 billion windfall to landlords, while risking conflict with wider government objectives on housebuilding, growth and investment, according to new independent economic analysis published today.

The analysis also finds the policy would wipe up to £18.7 billion from the value of ground rent investments – equivalent to around 0.6% of annual UK GDP – and could reduce total UK business investment by up to £9 billion per year as investors factor in greater policy uncertainty and higher borrowing costs.

The report, produced by WPI Strategy and commissioned by the Residential Freehold Association (RFA), is published as Parliament begins scrutiny of the draft Commonhold and Leasehold Reform Bill, which includes a retrospective £250 ground rent cap with a 40-year transition period before reducing to a peppercorn rate.

Government data shows 41% of leasehold properties are privately rented. The direct benefit of the cap would therefore largely fall to property investors and would be heavily concentrated in London and the South East, which account for around 55% of the total benefit.

Separate analysis using Land Registry data and valuation modelling highlights the scale of potential gains in prime London developments:

• Hanover Terrace, NW1, where flats are worth around £10 million and advertised at over £100,000 per month in rent. One landlord could gain over £420,000.
• One Tower Bridge, SE1, where homes are sold for up to £12 million, with significant overseas ownership. Estimated transfer of £144,618 per leaseholder.
• The Corniche, SE1, where homes are sold for up to £6 million, with at least half overseas-owned. Estimated transfer of £87,594 per leaseholder.

By contrast, the average leaseholder paying around £304 per year in ground rent would see only limited savings. Lower ground rents are also likely to be reflected in higher property prices, benefiting current leaseholders but raising barriers for first-time buyers.

The analysis also warns that investor uncertainty following the introduction of a cap could reduce annual housing starts by between 15,000 and 20,000 homes, making it more difficult for the Government to meet its target of delivering 1.5 million homes. More broadly, rewriting existing contracts risks undermining confidence in the UK’s policy framework, with potential spillovers beyond housing if investors fear that other long-term rules and commitments could also be retrospectively changed.

Natalie Chambers, Director at the RFA, said:

“The Government says this policy is about helping households with the cost of living but the reality is that the biggest beneficiaries would be buy-to-let landlords, including wealthy overseas investors.

“Retrospectively tearing up existing contracts risks damaging investor confidence, reducing housing supply and hitting ordinary pension savers at a time when the UK is actively seeking £50bn of long-term investment from pension funds through the Mansion House Accord.

“We support reform that tackles the issues leaseholders actually care about – improving transparency, regulating managing agents and raising standards – without undermining the Government’s economic goals or the UK’s reputation as a stable place to invest.”

Martin Beck, Chief Economist at WPI Strategy, said:

“While the intention of reform is to support leaseholders, the economic reality of a £250 cap is that much of the financial benefit will accrue to buy-to-let landlords rather than owner-occupiers.

Our analysis suggests the policy could deliver around £8.7 billion in windfall gains to property investors, including foreign investors, because a large share of leasehold homes are already privately rented.

At the same time, retrospective changes to long-term property contracts risk undermining investor confidence, which could reduce business investment and ultimately slow the delivery of new homes at a time when housebuilding is already under pressure.”