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What Is Freehold?
In the simplest terms, buying a property freehold means that you own the home or building as well as the land on which it stands.
As the owner, you are responsible for the entire property – the external structure, walls, roof, the possessions inside and also the ground.
You are able to freely make changes to the property – such as building an extension – as long as you have the required planning permission from your council.
Benefits of a freehold property
There are several benefits to buying freehold:
- You own the land on which your house sits.
- There are no additional charges or ground rent.
- You do not have to seek permission from a landowner or property owner to make changes (only council approval) or own pets.
- Easier to sell than leasehold properties.
- There is no lease to keep track of or payments to extend the lease.
Disadvantages of a freehold property
There are a few disadvantages to freehold properties, including:
- Freehold properties are more expensive to purchase.
- These properties are typically houses, not flats. If you are looking for an apartment, your choices are limited.
- You are responsible for all the maintenance costs.
- You have to pay buildings insurance.
What Is Leasehold?
A leasehold is when you buy a house or flat, but you lease the land on which it stands from the freeholder. Your lease of the property will be for a specific period, typically ranging from 125 to 999 years. Once the lease expires, the ownership of the property reverts to the freeholder.
Even though the house or flat is yours, you will sign a contract with the freeholder of the ground which dictates your responsibilities. You will also have to pay service charges and annual costs. Additionally, you may be responsible for some maintenance costs – all this should be stipulated in the contract.
If you wish to do any major work on the property, you will have to get permission from the freeholder. There may also be limitations on keeping pets; it is up to the freeholder’s discretion.
Although leasehold is usually reserved for flats, some older properties in the UK have freestanding homes that are leasehold. This practice was effectively banned in 2019; however, in 2023 the government announced that leasehold will not be banned, but rather that the system will be reformed. Interestingly, with these changes, ground rents of retirement properties will be moved to zero.
How long can a lease be?
A new lease can range from 99 to 999 years, although it is typically between 125 and 999 years.
A 999-year lease is almost as good as owning a freehold, as the lease will not end in your lifetime.
Short leases can be problematic, especially if they are nearing their end. This is because it can be more difficult to sell or remortgage a flat that only has a 70-year lease left to run.
Benefits of a leasehold property
Here are the main benefits of a leasehold property:
- You may get access to communal areas like a gym, gathering space, communal garden or lounge.
- Some leaseholds have concierge services or undercover parking areas.
- The leaseholder is not responsible for arranging maintenance work (although they may have to cover some costs).
- When it comes to purchasing leasehold vs freehold, leasehold is more affordable.
Disadvantages of a leasehold property
There are quite a few disadvantages to owning a leasehold property:
- You don’t have ownership of the ground on which your property sits.
- You have to pay ground rent and any service charges. If you don’t, you face repossession of your house.
- You need freeholder permission to make any changes to your home or own pets.
- You may not be allowed to run a business from your home.
- Higher conveyancing fees.
- It is hard to sell a leasehold property with a short remaining lease.
Main Differences Between Freehold And Leasehold Properties
To summarise, below are the main differences between a freehold and leasehold property:
- Ownership: With freehold, you own the property, buildings and land outright. With leasehold, the property is in your ownership, but not the land. You have to lease the land from a freeholder.
- Charges: There are no service charges with freehold, but you are responsible for maintenance costs and any upkeep. Leaseholders must pay ground rent and other fees, and may have to contribute to maintenance, too.
- Garden: Freeholders own the gardens on their property and must maintain them. Leaseholders do not own the (shared) gardens but are also not responsible for their upkeep.
- Remortgage: A freehold property can be remortgaged easily. It is trickier with leasehold properties, as lenders would prefer that there are more than 70 years left on the lease.
How Can I Tell If A Property Is Freehold Or Leasehold?
The easiest way to determine whether you are dealing with a leasehold or freehold property is to check the Land Registry website. Land Registry allows you to search according to postcode or track down the building’s title, which will confirm whether it is leasehold or freehold.
When buying a leasehold property you will be asked to sign a lease – which should remove any doubt that you’re not dealing with freehold.
As a rule of thumb, flat owners are usually leaseholders while homeowners are freeholders, but this is not a given.
Can I Buy The Freehold On My Property?
Once you have owned your leasehold property for more than two years, you have the right to buy the freehold. It would be best to undertake this process with the assistance of a solicitor via the Property Chamber of the First-Tier Tribunal (or the Leasehold Valuation Tribunal if you’re in Wales).
If you are in a block of flats, buying the freehold is complicated. The only way it can be done is if all the residents of the block of flats jointly purchase the freehold. It could be tricky, but may be worth it to reduce the costs paid to the management company and no longer pay ground rent.
Which Is Better: Freehold Or Leasehold?
Freehold and leasehold properties both have advantages and disadvantages, as discussed above.
However, generally speaking, freehold purchases are better because of the complete ownership it gives you. Although freeholds cost more upfront, the ongoing costs of leasehold properties (like ground rent, service charges, and maintenance fees) can make the initial costs worth it for the freedom of owning the land as well.
Leaseholders are often reigned in with restrictions. The landowner may not allow pets, and may not approve any work on the property.
Leaseholders often live in constant fear that the freeholder may decide to sell the property on which they live. A new owner can then change the ongoing charges with no warning.
When it comes to leasehold vs freehold, freehold properties tend to be less restrictive and less complicated.
FAQs
Is a freehold property worth more than a leasehold property?
Yes, leaseholds tend to be cheaper than freeholds of the same type. This is because of the risks associated with leasing – such as a lease nearing its end, which can make it harder to sell (often resulting in lower selling prices).
Will it be worth buying the freehold of my leasehold property?
If your lease has unfavourable terms, a high service charge, or is nearing its end, then it could be worth purchasing the freehold. However, it is a difficult, long, and expensive process and you will have to enlist the help of a solicitor.
Final Thoughts
When it comes to freehold vs leasehold properties, both types of ownership have benefits and disadvantages. However, generally speaking, freehold is the better choice of the two if you can afford it.
Freehold means you own the home and the land on which it is built, which affords you a lot more freedom. Although leasehold is more affordable, you will be restricted in what you can do with the property, and may also struggle to sell or remortgage if the lease is nearing its end.
Additional Sources:
https://www.homeviews.com/blog/freehold-vs-leasehold-whats-the-difference
https://www.nerdwallet.com/uk/mortgages/freehold-vs-leasehold-differences/
https://www.halifax.co.uk/mortgages/help-and-advice/freehold-vs-leasehold.html