Freehold vs Leasehold Is Worth Consideration
Checking whether a property is Freehold or Leasehold is often an afterthought for many homebuyers weighing up a purchase, but this frequently overlooked consideration is worthy of attention for a number of reasons.
So what is the difference between the two? When you buy a freehold property, you own it outright - including the land on which it’s built – and you’re responsible for maintaining both the property and the land.
When you buy a leasehold property, you're effectively a tenant. The ground the home is built on remains in the hands of the freeholder. You take over the lease from the previous owner and own the property and its land for the length of your lease agreement with the freeholder. When the lease ends, ownership returns to the freeholder (often known as the landlord) unless you are able to extend the lease.Those living in a leasehold property will have to pay annual ground rent, and must also ask the freeholder if they wish to make any changes to the property - such as building an extension.
The majority of leasehold properties are apartments, but there are also cases where houses are leasehold due to shared ownership schemes or shared rights (such as access or parking) with neighbouring properties. Not having to worry about the maintenance of the land is the only real advantage of a leasehold property.
If you’re thinking of buying a leasehold property, you need to examine two key factors: how many years are left on the lease and whether you have enough budget for any ongoing service charges and related costs. The length of the lease could affect your ability to secure a mortgage. Lenders normally require it to run for 25-30 years beyond the end of your mortgage, so if you’re seeking a 25-year mortgage the lease needs to have at least 50-55 years remaining.
As a result, in can also be difficult to sell a property if the lease is for less than 80 years, so you need to consider its length in terms of resale value too. If you’re buying a leasehold property, it’s worth imagining how long you intend to live there and how many years will be left on the lease by the time you move on.
That said, it’s also worth bearing in mind that you can ask the landlord/freeholder to extend the lease at any time. After you’ve owned your home for two years, you have the right to extend your lease by 90 years, provided you are a qualified tenant (generally speaking you are recognised as a qualified tenant if your original lease was for more than 21 years).
The landlord/freeholder will unusually charge for extending the lease and the cost will depend on the property. If you and the freeholder can’t agree on this cost, you can appeal to the Leasehold Valuation Tribunal. You may need the services of a solicitor and surveyor in this scenario and it could become a costly exercise.
A freehold property takes all of these concerns out of the equation: owning the property outright means you don’t have to worry about the lease running out.