Leasehold & Freehold property: What's the Difference 08/02/22

Home ownership can be in two legal forms, these are:freehold and leasehold. For somebody looking to invest in property you need to be especially sure of the type of ownership you will have of a property because the responsibilities and costs will almost certainly differentiate.

What is a freehold?

A freehold property owner will own absolutely everything that comes with the building, from the windows and doors to the bricks and patio. The owner will also own and be responsible for the very land which the property stands on. This essentially means that you as the owner are free to do whatever you wish to with the property and garden, providing its within the law!However, as the saying goes, with great power comes great responsibility, which couldn’t be truer in the case of a freehold ownership, where you are solely responsible for the maintenance of the building and the grounds it comes with.

What are the benefits of choosing freehold?

·      Can sell the property whenever you are ready-without having to ask permission to make minor changes or pay for the privilege to do it

·      No annual ground rent to pay

·      Less conditions to abide by e.g. permission to have a dog

·      You can control the providers and service charges

·      It can potentially add value to your home because buyers prefer freehold

·      Can extend your lease to 999 years at no extra cost

So, are there any drawbacks?

·      As previously mentioned, you are solely responsible for the maintenance of the building and its grounds, so the cost ofthis will come out of your pocket

·      Freeholds are usually more expensive because you own the land as well as the building

·      These are usually housing, which makes freehold flats harder to come by

What is a leasehold?

Purchasing a leasehold property means that you will be purchasing a lease from the freeholder, which by now, you will already know who they are and what responsibilities they have. They will give you the right to live in the property for a set number of years. It's important to note that you will never own the property outright. You simply have the right to live in the property while the freeholder will continue to own the property and the ground it sits on. Lease lengths can very much depend on the location and type of property at hand, but typically a new lease will start off at around 99 years, but there are leases which will run as long as 999 years.

Leaseholds are especially common when buying flats and apartments because usually the block and land will be owned by a freeholder.For many years, the leasehold market was very narrow in terms of a lack of availability in houses. However, government schemes and initiatives have caused an increase in new builds which can often be sold directly through the developer who may wish to retain the land which the estate has been built upon.

What benefits are there to purchasing a leasehold property?

·      Significantly cheaper than freehold ownership because the land is not included in the purchase. It can actually prove to be cheaper than renting outright, depending on the length and terms of the contract

·      It can provide an alternative and more affordable finance option to a traditional mortgage because in some contracts, the buyer can choose to purchase the entirety of the property and land at a lower per annum fee

·      Easier method of entering the property market avoiding the cost and commitment of owning land

And the drawbacks?

·      Well, rent is frequently amended to reflect the changing property value, so if you’re not careful, you could be left with ground rent you simply can’t afford to pay

·      Leasehold properties generally require higher deposits which may make sourcing finance more difficult

·      No benefit of capital gains on your property, these only serve to the freeholder