Landlords in line for £8.7 BILLION windfall as Labour's rent cap proposal to benefit 'foreign investors'

Ministers announced their overhaul of the leasehold system in England and Wales in January, with the cap intended to benefit more than five million leaseholders and future homeowners through enhanced protections and powers.

However, the analysis calculates that the measure could strip up to £18billion from ground rent investment values, equivalent to roughly 0.6 per cent of annual UK GDP, whilst potentially reducing business investment by as much as £9billion yearly.

The study, authored by Martin Beck, WPI Strategy's chief economist and former Treasury economist, warns that a significant portion of ground rent investments are held by UK pension funds, meaning any decline in asset values could prompt trustees to adopt more cautious approaches to domestic investment.

Mr Beck 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."

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

The report argues that retrospectively altering long-term property contracts threatens to erode investor confidence, with potential consequences extending beyond the housing sector.

The analysis suggests investor uncertainty stemming from the cap could reduce annual housing starts by between 15,000 and 20,000 homes, though the report acknowledges it cannot predict with certainty how many properties would remain unbuilt.

London and the South East would likely bear the brunt of these effects, according to the study, given these regions' higher concentration of flat-led developments where financing arrangements are particularly vulnerable to shifts in returns.

The report states: "The Government's ambition to deliver 1.5 million new homes depends critically on the willingness of private investors and developers to commit long-term capital at scale."

It warns that even modest rises in capital costs can push marginal schemes below viability thresholds, particularly for more complex developments.

Natalie Chambers, the director at the Residential Freehold Association, which commissioned the report, 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."

She added: "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."

A Ministry of Housing, Communities and Local Government spokesperson dismissed the concerns, stating: "Ground rent is money for no clear service in return, and in the worst cases leaseholders face spiralling costs.

"The notion that this cap will harm housebuilding is nonsense it will reduce costs for leaseholders and make the housing market more efficient by simplifying the buying and selling process."