If anyone is really interested, here is the Hansard from the Lords Committee stage of the GR Bill - do a search for "hereditary" to jump to the relevant section, about 2/3s down the page.
Some relevant extracts (this is the government minister speaking)
Clause 16 states that the issue of a gender recognition certificate does not affect the descent of peerages. It has been included so as to exclude the possibility of a person changing gender—I refer to an elder daughter changing gender in these circumstances—in order to leap-frog a sibling and in that way obtain a peerage, dignity or title of honour. If that could occur it would defeat the expectations of the person to whom the peerage would have otherwise descended. Peerages are also unique because they descend to the eldest son, according to birth. That is another reason why birth gender should continue to count. The adoption and children act of 1992 makes a similar exception, about which the noble Earl, Lord Ferrers, may have waxed eloquently 13 years ago. The exception is there so that the adopted children may not inherit a peerage, even if they qualify—as, for example, the eldest son.
It was never the intention that a Knight Commander who became a woman in the eyes of the law should continue to style herself as "Sir". But the noble Baroness has raised a valid point—and I hope that I am not upsetting the noble Earl, Lord Ferrers, by acknowledging that—about whether a Peer or the holder of another title can legitimately swap it when his or her gender changes in law.
In fact, all of us are in the gift of Her Majesty. She, alone, can confer a title and she, alone, can alter the form of address that a holder uses. However, that does not mean that an amendment to the Bill is necessary. The Government have, since Committee, consulted the Palace and the Garter Principal King of Arms. We are in agreement that the best way to proceed in such rare cases—I underline "rare"—would be for the holder of the title to petition Her Majesty to ask that she change the form of address. There is a wide range of circumstances under which an individual may wish to adopt a different form of address as a result of the Bill. In addition to transsexual people themselves, the former or future spouse of a transsexual person may have a claim on a courtesy title.
Legislating for this multitude of circumstances would seem disproportionate given the very low frequency with which the situation would arise. It would also reduce Her Majesty's prerogative powers in this area. Accordingly, the Government are satisfied that the right to petition Her Majesty, which already exists and will continue to do so, is a sufficient and proportionate method of dealing with the matter.