A former minister has warned the prime minister could face a “mass rebellion” if the government waters down promised reforms of the leasehold system in England and Wales.

Justin Madders told the BBC Labour must stick to its pledge to cap ground rents – an annual fee leaseholders must pay to their freeholder.

Labour’s election manifesto promised “to tackle unregulated and unaffordable ground rent charges” but there are concerns the government may row back on a cap because of the potential impact on pension funds.

The government insisted it would legislate to deliver on this pledge and would “set out further details in due course”.

It comes after former Housing Secretary Angela Rayner urged the government to stick to its manifesto pledge and cap ground rents.

Ministers had promised a draft bill would be published before the end of the year, aimed at reforming the leasehold system in England and Wales and moving towards abolishing it.

However this was delayed, with the issue of ground rents believed to be behind the hold up.

There are around five million leasehold homes, where people own the right to occupy the property via a lease for a certain number of years from a freeholder.

Ground rents – which can often be hundreds of pounds a year – were abolished for most new residential leasehold properties in England and Wales in 2022 but they remain for existing leasehold homes.

It is common for a lease to include a clause that the ground rent increases by a certain percentage or RPI inflation at fixed intervals, which can make it difficult to sell or get a mortgage for a property.

In 2024, when Labour was in opposition, the current Housing Minister Matthew Pennycook said his preference was for ground rents to be capped at a peppercorn rate – meaning a nominal sum such as £1 a year.

However, campaigners now believe a cap of £250 a year is more likely.

Some reports have suggested there are divisions between the Treasury and housing department over the issue, with officials concerned about the impact of a cap on pension funds which own freehold properties.

Treasury sources acknowledged there were difficulties over where to draw the line over annual charges.

But they played down the idea of tensions between departments and said ministers were trying to strike the right balance.

Madders – a close ally of Rayner who worked alongside the former housing secretary on the Employment Rights Bill – said Labour had “a clear manifesto commitment” and “a lot of backbenchers feel very strongly about this”.

In December, he coordinated a letter from more than 80 Labour MPs urging the prime minister to cap ground rents.

Madders, who was an employment minister until last September’s reshuffle, said capping rents at a peppercorn would be the ideal scenario but “the risk of elongated legal challenge is quite significant” so he could accept a limit of £250 a year.

If there was no cap he said there was “no way” the government would be able to get the bill through Parliament and “I think there will be a mass rebellion”.

The MP for Ellesmere Port and Bromborough added that he would personally be willing to rebel over the issue.

Fellow Labour MP Florence Eshalomi, who chairs the Commons Housing Committee which will scrutinise the draft law, said the bill’s delay was disappointing and “the government need to stop dragging their feet”.

She urged the government to “honour that commitment it made to leaseholders” to “end the feudal leasehold system”.

Jon from Harrogate told the BBC he felt “trapped in a nightmare” because of the ground rent on his leasehold home, which is currently £200 a year but doubles every 10 years.

He bought the flat in 2017 but says his solicitor did not flag any issues over the ground rent, which he says has now made the property “unsellable and unmortgageable”.

When Jon and his wife wanted to start a family they tried to sell the flat at auction for £50,000 less than what he bought it for but could not find a buyer.

Unable to sell, the couple had to rent for several years to save up to buy a house big enough for their family.

The 45-year-old said he was “horrified” the government had not yet acted to address the issue.

Katie Kendrick, co-founder of the National Leasehold Campaign, said mortgage lenders were becoming more aware of the issue of escalating ground rents and “every day we see sales falling through”.

She said if the government did not cap ground rents this would be “another broken promise and leaseholders will not forgive them”.

“There will be uproar from many MPs if they backtrack,” she added.

Kendrick said the argument that capping ground rents would impact pension funds was “rubbish” because only a “small proportion were affected” and “they knew this was coming”.

Harry Scoffin, founder of the Free Leaseholders campaign group, said: “At the election Labour promised to end the feudal leasehold system and if they backtrack on reducing ground rates to a peppercorn or zero financial value they’re not ending the leasehold scam.”

A spokesperson for the Residential Freehold Association said capping ground rents “would be an unprecedented and unjustified interference with existing property rights, which would seriously damage investor confidence in the UK housing market”.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “Far too many leaseholders face unregulated and unaffordable ground rent charges.

“We will legislate to address this and will set out further details in due course so we can bring the feudal leasehold system to an end.”