Freehold vs Leasehold: What’s the Difference?
One question I am often asked is, what is the difference between freehold and leasehold? There are so many terms to keep up with throughout the property buying process and, these are two that you will come across often. Knowing the difference is essential when you are purchasing a home as it can have a monetary impact. So, let’s take a look at what freehold and leasehold actually mean and how they impact property costs.
What is freehold property?
Most houses are freehold. When you purchase a freehold property, you will own the property and the land outright with no set time limit. You are responsible for the upkeep and maintenance. In some flats, you may share a freehold with your neighbours.
PROS:
- Complete control over the property. You can have visitors when you like and make any changes to the land and property within legal guidelines.
- Your property is yours until you want to sell it.
- There are no extra payments to make, for example, ground rent fees.
CONS:
- Research shows that a freehold property is often more expensive. However, this can derive from the fact that flats are more likely to be leasehold and flats often cost less.
- Being solely responsible for a property means that any structural and building issues are down to you.
- Freehold properties often have a higher down payment.
What is a leasehold property?
A leasehold property is entirely different and more complex. As a leaseholder, you own the property but not the land. When you purchase a leasehold, you are buying from a landlord for a finite period. Leases are often very long; some are up to 999 years, and you will have an option to extend if you need to. In that time, you are responsible for all maintenance within the four walls of the property. In general, most flats are leasehold.
PROS:
- Leasehold properties can be cheaper.
- The responsibility for building and structural maintenance is normally down to the freeholder.
CONS:
- A leaseholder will need to commit to annual service charges and ground rent. These costs can often increase over the years.
- There may be restrictions on how you live in your property. For example, the contract may state that you cannot run a business from home or own a pet.
- The freeholder may change hands, and this can impact ongoing costs and regulations.
- A lease extension can be very costly.
- A freeholder has the right to request payment for major renovation works such as a damp improvement work, new driveway areas and external decoration.
- You will need a freeholder’s permission before making major changes to the property.
- There are no benefits from any increases in the land value.
Leasehold properties often come with high ground and service fees. However, there are some exceptions. Houses that have been converted into flats can have lower service charges or none at all.
Tips for buying a leasehold property
Before you commit to a leasehold it is important to check:
- The lease length. If the lease is short, then investigate the cost of extending. Anything shorter than 80 years can be a red flag as fees can dramatically increase when a new lease begins.
- Be clear on the costs of ground rent and communal fees. Always review the lease to see if this charge can go up and by how much, over time.
- Ask if there are any plans for major work. For example, roof repair and window replacements. Even though this cost will be shared, it can be a substantial amount to factor into a new home.
- Always check that communal areas are in good condition.
In general, houses are often freehold, and flats are leasehold. However, always confirm this when you view a property. In recent years there has been an uptick of leasehold houses, often found in newbuilds, and there has been a fierce debate on whether this is entirely fair on homebuyers. There will always be positives and drawbacks to owning freehold or a leasehold but being aware of both can assist you in making the right property purchase for your needs.
Have you purchased a home recently? Was it a leasehold or a freehold?