One in 10 people who own a leasehold property says the cost of ground rent impacts their quality of life, and a third would struggle to afford further increases.

Homeowners in leasehold properties are collectively shelling out £447 million in ground rent every year.

The average person pays £319 in the rent annually, with 9% saying the cost impacts their quality of life, according to trade body NAEA Propertymark.

More than a third of people with leasehold homes said they would no longer be able to afford to live in their property if the ground rent increased, with 6% admitting they were already struggling with the cost.

One in 10 homeowners faced a hike in rent costs since they first moved into their property, with the increase typically coming after just seven years.

Mark Hayward, chief executive at NAEA Propertymark, said: “Even though many leasehold contracts include a ‘ten-year ground-rent freeze’, most developers sell the freehold on to a third party within a few years of completion and those terms go out the window, meaning homeowners are faced with unexpected and escalating costs.”

Why is this happening?

While in the past leasehold properties tended to be restricted to flats, there has been a growing trend among developers to sell houses on a leasehold-basis as well.

Unlike a freehold property, with a leasehold one, homeowners do not own the property outright but only have the right to live there for a set period.

They also have to pay annual rent on the land on which the property sits.

A recent report by the Housing, Communities and Local Government Committee warned that people living in leasehold properties were treated as a steady source of profit by developers, freeholders and managing agents.

It added that in some cases ground rents had doubled every 10 to 15 years.

Who does it affect?

Government statistics suggest there were 4.2 million leasehold properties in England in 2015-16, two thirds of which were flats.

But the NAEA Propertymark study suggested there was a lack of understanding about leaseholds, with one in five people saying they did not understand in detail how much their ground rent could go up by, while 46% said if they had known how much it could increase they might not have purchased the property.

What’s the background?

Earlier this month, the Competition and Markets Authority launched an investigation into the leasehold property market to see if consumers were being treated fairly when they bought a home.

It plans to look into whether people who bought leasehold properties were mis-sold them and not given the information they needed to fully understand their obligations.

It will also consider whether the terms of the leaseholds are potentially unfair, with homeowners being forced to pay excessive fees.

The Government has also expressed concern about the plight of people in leasehold properties. Last year it launched a consultation on imposing a cap on ground rents for new-build leasehold homes.

It has also proposed that the majority of new-build houses should be sold as freehold.

Top 3 takeaways

  • Homeowners in leasehold properties are collectively shelling out £447 million in ground rent

  • The average person pays £319 in ground rent, with 9% saying the cost impacts their quality of life

  • More than a third of people with leasehold homes said they would no longer be able to afford to live in their property if the ground rent increased, with 6% saying they were already struggling with the cost.