In the UK, most properties are either leasehold or freehold. But what do these terms mean, and what is the difference between them? This article answers some of the most frequently asked questions about leasehold and freehold properties.
What is a freehold property?
A freehold property means that you own the house as well as the land it’s built on (including the garden and other outdoor areas).
What is a leasehold property?
A leasehold property means that you own the property but not the land it’s built on. This land is owned by a freeholder, who sells the use of the property on their land for a set amount of time (typically hundreds of years).
What’s the difference between leasehold and freehold?
There are several key differences between leasehold and freehold, including:
- With freehold, you own the property and the land it’s on. With leasehold, you own the property but not the land.
- Freehold is most common with houses, and leasehold with flats – although, leasehold houses do exist.
- With freehold, you own the gardens included with the property. It’s also your responsibility to keep them maintained. With leasehold, shared gardens belong to the freeholder.
- With leasehold, it’s typical to pay ground rent to the freeholder for use of the land. Other service charges may apply. With freehold, there are no additional charges, and you are responsible for all maintenance.
- Remortgaging or selling a freehold property is typically easier. If there are fewer years left on the lease (typically 70 years or fewer), it may be difficult to remortgage or sell a leasehold property.
What is a share of freehold?
A share of freehold means that each property owner on the land (for example, in a block of flats), owns a share of the freehold alongside other leaseholders, instead of effectively renting the land from a sole freeholder.
Owning a share of freehold can be beneficial, as it allows you more control over the maintenance of the property and land and makes it easier to extend the lease. However, it can be expensive to buy the freehold, as you’ll have to account for your share of a surveyor to determine the value, the purchase price, legal fees, and even stamp duty if the price is over £125,000.
Can you buy the freehold of a leasehold property?
If you live in a leasehold property, as long as at least half of leaseholders agree to buy a share of the freehold, you can apply to the freeholder at any time.
If you live in a leasehold house with no other freeholders on the land, you may be able to buy the freehold.
How long do leases last for?
Leases on leasehold properties vary in length, usually between 125 and 999 years in length. The longer the lease is, the more the property will be worth, although it is possible to pay to extend the lease in most cases.
Leasehold pros and cons
There are pros and cons to leasehold properties, such as:
Pros:
- Leasehold properties are typically cheaper than freehold properties, which can be an advantage for first time buyers or those with a smaller budget.
- The freeholder is typically responsible for ensuring maintenance to the building and grounds is carried out, as well as providing building insurance.
- Many leaseholds are in buildings with shared amenities, such as gardens, common areas, and even gym and leisure facilities in some cases.
- You may be able to purchase the freehold or a share of the freehold, which can increase the property’s value.
Cons:
- Ground rent and service charges are payable to the freeholder, and these charges can increase.
- You may not be allowed to keep pets, alongside other restrictions on the lease which can impact your enjoyment of the property.
- Conveyancing fees may be higher due to extra work involved in leasehold transactions.
- The fewer the years left on the lease, the harder it can be to sell or remortgage.
Freehold pros and cons
There are various pros and cons to purchasing a freehold property, including:
Pros:
- You have complete ownership and control over your property, including the building and garden.
- You don’t have to pay any service charges or ground rent.
- You have freedom to make any changes to the property that you like, have pets, and enjoy none of the other restrictions that may come with a leasehold property.
- It’s often easier to sell and get a mortgage on freehold properties.
Cons:
- Freehold properties are typically more expensive than leasehold properties.
- You are solely responsible for the maintenance of the property and grounds.
- In certain areas, such as densely populated city centres, freehold properties can be harder to find.
Is it better to buy leasehold or freehold?
Ultimately, whether you decide to buy a leasehold or freehold property is a personal choice. It can depend on several factors such as your budget, the availability of properties in the area you want to live in, and your lifestyle.
Can you extend a leasehold?
If your lease is getting short, you can apply to the freeholder to extend the lease at any time. You can typically extend the lease by 90 years on a flat, or by 50 years on a house, either through a formal route or by approaching the freeholder on an informal basis and negotiating a lease extension.
Extending the lease can increase the property’s value and make it easier to sell. But, it can be costly to do so.
What happens at the end of leasehold?
When a leasehold ends, ownership of the property passes to the freeholder, and they own both the property and the land it’s built on. However, this very rarely happens, as the vast majority of leaseholds are extended long before they end.
Are there any charges on leasehold properties?
Yes, there are a few charges that you can typically expect to pay on a leasehold property:
- Ground rent to the freeholder, who doesn’t need to provide anything in return
- Service charges, which typically pay for the upkeep of the building and communal areas, as well as building insurance
In most cases, the lease will make provisions for these charges to increase. Your conveyancer will be able to explain the different charges to you.
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