Ground rents will be capped at £250 a year in England and Wales as part of sweeping changes to the leasehold system announced by the Government. New leasehold flats will be banned, and existing leaseholders will have the right to switch to commonhold under the reforms, giving homeowners greater control over their properties.

Making the major announcement in a video posted on TikTok, Prime Minister Sir Keir Starmer said: “I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country.”

It comes after backbenchers, including former deputy prime minister Angela Rayner, urged the Government to stick to Labour’s manifesto promise to tackle “unregulated and unaffordable ground rent charges” amid concerns the move could impact pension funds.

Writing in the Guardian earlier this month, she said ministers were “subjected to furious lobbying from wealthy investors” trying to water down the commitment and warned people may lose faith if the party could not fix the “obvious injustice” with a cap.

Labour MPs have also previously urged ministers to go further than ending new leasehold flats by scrapping the system entirely.

Housing Secretary Steve Reed said the Government was committed to “a comprehensive reform of leasehold so that we can abolish it” as he faced questions from broadcasters about the changes.

Asked what the timeframe would be for achieving this, he told Sky News ministers would “be able to announce that when we announce the results of the consultation”.

The reforms, which are set to benefit more than five million leaseholders and future homeowners, will be included in draft legislation to be published on Tuesday.

The Residential Freehold Association (RFA) – the trade body representing professional freeholders – said the ground rent cap was “wholly unjustified” and warned of its impact on the UK’s reputation with investors.

A spokesperson for the RFA said the cap “would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector”.

Chris Barry, director at London-based Thomas Legal, also pointed out the move spells bad news for pension funds “heavily exposed to freeholds”.

He added: “This could impact the lives of working people who are indirectly invested in the assets, which will take an enormous income hit in some cases.”

Mortgage experts have praised the move, describing it as a “positive start” that could inject more life into the property market.

Justin Moy, managing director at EHF Mortgages, said: “We have seen too many leasehold properties fail mortgage lender criteria simply due to high ground rent and onerous terms for future increases, so this will be a very welcome announcement for those who are currently stuck with unmortgageable properties and limited options.

“This will also reduce the number of flats and leasehold properties needing to go to auction, allowing more first-time buyers to buy with some confidence, while lenders have fewer concerns about security values in the near future. It’s a positive start in tackling the leasehold conundrum.”

Rohit Kohli, director at The Mortgage Stop, added that the “stability” brought by the changes will help household budgets and boost buyers’ confidence.

He said: “It’s not a cure-all -service charges and unresolved cladding issues still bite. The big watchpoint is delivery: how commonhold on new flats will operate day to day, and how quickly lenders update criteria. We’ll need clear rules and timelines. Overall, a strong step, provided the detail matches the promise.”