Freehold vs Leasehold: What’s the difference? If you’re looking to buy a property, it’s important to know the difference between freehold vs leasehold. Here’s Winkworth’s simple guide.
Purchasing a property can be a stressful experience. There are so many factors to consider, from solicitors to mortgages, not to mention actually finding the perfect property to begin with. But one important aspect that is often left as an afterthought is whether the property is freehold or leasehold. Each has significant implications for your home and rights as an owner, so it is vital to research which option is best for you. Here is Winkworth’s guide to buying freehold vs leasehold.
Freehold vs leasehold
The freehold is when you own the property as well as the land that the property sits on. In comparison, the leasehold is when you own the property but someone else owns the land. The freeholder could be a private company, an individual or the local council.
Owning just the leasehold means that you own the property until the lease runs out. The longer the lease, the better, and if a lease has less than 80 years left, the property’s value decreases significantly. This means that you may have trouble reselling or remortgaging it.
Once you have owned the property for two years, you can pay to extend the lease. In January 2021, housing minister Robert Jenrick announced that leaseholders could extend their lease by 990 years, rather than the previous limit of 90. The ruling also stated that leaseholders can reduce their ground rent (the fee a freeholder pays to the leaseholder for living on the land) to zero.
It is also possible to own a share of the freehold, for example in a building with several flats. If all the flats’ owners agree, you can club together to purchase the freehold, making everyone equally responsible for the land.
Pros and cons of leasehold
The benefits of a leasehold property include that you are not responsible for the upkeep of the outside of the building and communal areas such as the roof or hallways. The freeholder is in charge of carrying out any repairs or maintenance.
However, leasehold owners have to pay a service charge to the freeholder, which covers any maintenance work as well as the building insurance. The amount depends on the type of property you live in, for example a luxury development with a doorman will likely have a higher service charge than a period conversion. It is important to factor in a property’s service charge to ensure that you can afford it along with your mortgage and bills.
Pros and cons of freehold
The benefit of a freehold property is that you own the property and the land, and therefore have complete control over your home. You do not have to pay any service charges or deal with a landlord. On the other hand, you are responsible for the maintenance of your property and any building work.
Another positive of owning the freehold is that you don’t have to worry about the lease running out; the property is completely yours until you choose to sell it. Owning the freehold or share of the freehold is considered to be a desirable factor, which may help when you come to sell the property.
Overall, there are pros and cons to both freehold and leasehold properties. Freehold is definitely a simpler option but while most houses are freehold, freehold flats can be quite difficult to come by. As a result, they tend to be more expensive than leasehold flats. The most important thing is that you check the length of the lease and how much you will be paying in service charges before committing to purchasing a leasehold property.
Should you require any guidance ony any of the above, please contact your local Winkworth office today.