Leasehold reforms risk deterring investors to the UK, industry groups warn

Government plans to cap ground rents at £250 a year could have major ramifications on the pensions and investment industry and “weaken the appeal” of the UK, according to warnings.

The changes are expected to affect companies and funds with assets linked to ground rent income.

Millions of leaseholders and future homeowners are set to benefit from charges being reduced and the ability to switch to commonhold, according to the Government.

But groups representing property investors have warned that retrospective changes to current property rules could have unintended consequences.

A spokeswoman for the Association of British Insurers (ABI) said it “supports proportionate leasehold reform” but raised concerns about the knock-on effect for pension funds.

“We are deeply concerned that retrospective changes to existing property rights set a troubling precedent and undermine confidence in contract certainty,” the organisation said.

“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.

“We will continue to discuss this with members and Government.”

Danny Pinder, director of policy for the British Property Federation, said it supports the move to address “rapidly escalating ground rents” but warned that the 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”.

He stressed that compensation should be given to those that have “invested in good faith” and who “continue to fund everyone’s pensions”.

Investment manager M&G warned of a £230 million one-off hit as a consequence of the reforms.

The company said it has £722 million of ground rent assets through a shareholder fund, and that the financial hit will come from a write-down on the value of these assets, should the reforms go ahead in their current form

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

It is understood that some of the UK’s biggest insurance groups are also speaking to the Government about the impact of the reforms, while investors might seek compensation over possible losses.

There is not expected to be a significant impact on major Britain’s housebuilders, with the competition watchdog leading a crackdown since 2019 on mis-selling of leasehold homes on contract terms that break consumer law, with probes involving major housing developers and freehold owners.