When you’re house hunting, is it easy to get caught up in things like the location, the interiors and how you might want to redecorate a property. But there is something else that should also be taken into consideration – the tenure of the property and whether it is Freehold or Leasehold.
This detail can affect what you can do with the property and long-term costs involved. Here’s everything you need to know about Freehold and Leasehold properties before you make an offer.
What is Freehold?
Buying a Freehold property means that you own both the building and the land that it sits on outright. There is no time limit on how long you own the property and land for and there are usually no ground rent payments or service charges to be made to a third party.
You can generally do what you like to your Freehold property without needing to get a freeholder or managing agent’s permission (local planning rules may still apply).
Buying or selling a Freehold property is usually more straightforward than a Leasehold, as you have full control of the property and there is no need to liaise with a landlord or managing agents during the transaction.
The downsides to buying Freehold is that you are likely to have a higher purchase cost than Leasehold as well as being responsible for all maintenance and repair costs, which can easily add up over time depending on the age and condition of the home.
What is Leasehold?
When you buy a Leasehold property you do not own the property outright. Instead, you own the property for a fixed term, while the land that the property is built on remains owned by the freeholder.
It is common for flats in England and Wales to be Leasehold, however you can occasionally get Leasehold houses as well.
Leasehold homes often come with additional ongoing costs tied to them such as ground rent and service charges. If the length of the lease is below 80 years this can lower the value of the home and mortgage options can become limited. Leases can be extended, but this can be a costly endeavour.
With a Leasehold home you’ll usually need a freeholder’s permission for changes such as renovations. Some Leasehold contracts contain restrictions about things like letting the property or keeping pets, so it is important to review the details carefully.
Why Leasehold can be more complicated
Leasehold transactions can be more complex than Freehold. Buyers and lenders need clear information on the lease length, ground rent and service charges, all of which can affect property value and mortgage options available to buyers.
This information often comes from the freeholder or managing agent, which has the potential to lead to delays. In some cases, you may even need the freeholder’s consent before selling. These added layers of cost, paperwork and permissions can make a leasehold property trickier to manage and sell compared to one that is Freehold.
Leasehold vs Freehold, which is right for you?
There is a lot to consider when buying a property, and tenure can make a big difference to how easy it is to own, maintain and eventually sell. A Freehold home usually means fewer complications and more control, although you are responsible for all maintenance of the home and grounds. A Leasehold property comes with additional rules, ongoing charges and more complex paperwork.
Leaseholds do boast some additional benefits however, repairs to the communal and external areas (roofs, gardens, hallways etc.) are often shared between yourself, other leaseholders and the freeholder. You may have access to other communal amenities such gyms or maintained gardens and you may find that Leasehold properties, particularly flats, are cheaper to buy than a Freehold home.
It is also worth noting that the Leasehold Reform (Ground Rent) Act in 2022 banned ground rent from being charged for most new residential leases; this came into force from June 30th 2022. This only applies to new leases, not existing ones.
Further changes are coming with the Leasehold and Freehold Reform Act 2024, key changes within this act include a standard 990 year lease extension, a ban on new Leasehold houses and improving the transparency on service charges. This act has received royal assent however, ongoing legal challenges means the full implementation of these new laws is yet to happen.
Before you make an offer on a Leasehold property check all the details carefully. Especially the remaining length on the lease, ongoing charges or costs and any planned works that are due to take place, so you are fully aware of what you will be committing to.
