When buying a property, one of the most important decisions you’ll make is whether to purchase a freehold or leasehold property. Both options come with their own set of benefits and considerations, and understanding the differences is crucial to making an informed decision.
Here’s a breakdown of the key factors to consider when choosing between freehold and leasehold:
What Is Freehold?
If you purchase a freehold property, you own the building and the land it stands on outright. This is considered the most straightforward form of property ownership in the UK and typically applies to houses rather than flats.
Key benefits of freehold ownership:
- Full ownership: You own the property and the land it’s on indefinitely, without any time limits.
- No ground rent or service charges: Unlike leasehold properties, there’s no obligation to pay ground rent or service charges to a landlord.
- More control: As a freeholder, you have full control over your property and can make changes without needing permission from a landlord. However, planning permission may still be required for significant alterations.
Potential drawbacks of freehold ownership:
- Higher initial cost: Freehold properties are often more expensive to purchase than leasehold properties.
- Maintenance responsibility: As a freeholder, you are fully responsible for the maintenance and upkeep of both the building and the land. This can lead to additional costs if repairs are needed.
What Is Leasehold?
When you purchase a leasehold property, you’re essentially buying the right to live in the property for a fixed number of years, which is set out in the lease. The freeholder (also known as the landlord) owns the land the property sits on, and after the lease expires, ownership reverts to the freeholder unless the lease is extended.
Leaseholds are more common with flats, though some houses can also be sold as leasehold.
Key points to consider with leasehold ownership:
- Lease length: Leaseholds typically range from 99 to 999 years. The length of the lease can affect the property’s value, and mortgages can be difficult to secure if the remaining lease term is below 70 years.
- Ground rent and service charges: As a leaseholder, you are required to pay ground rent to the freeholder, as well as service charges for the upkeep of communal areas (such as the exterior of a building or shared gardens).
- Lease restrictions: Your lease will often set out what you can and can’t do with the property. For example, there may be restrictions on subletting or making structural changes without the freeholder’s permission.
Key Considerations When Choosing Between Freehold and Leasehold
- Cost
- Freehold properties usually come with a higher upfront cost, but you avoid ongoing charges like ground rent and service fees.
- Leasehold properties may be cheaper initially, but the ongoing costs of ground rent and service charges can add up over time, particularly if the freeholder increases these costs.
- Control and Flexibility
- With a freehold, you have complete control over your property, from making structural changes to how you use the land. You won’t need permission from anyone else for home improvements, except for standard planning permissions.
- Leasehold properties can come with various restrictions on alterations and usage, which can limit your ability to make changes. You may need to seek permission from the freeholder for even minor adjustments.
- Lease Length and Renewals
- The length of the lease is a significant factor in leasehold ownership. A short lease (usually under 80 years) can reduce the property’s value and make it difficult to secure a mortgage. Extending a lease can be expensive, and the cost increases significantly once the lease drops below 80 years.
- Freeholders don’t face these concerns since the ownership is permanent.
- Resale Value
- Freehold properties tend to hold their value better over time because there are no concerns about lease length or ground rent increases.
- Leasehold properties with a short lease or high service charges can be harder to sell and may not appreciate in value as quickly as freehold properties.
- Future Costs
- Freeholders are responsible for all repairs and maintenance, but they avoid additional fees.
- Leaseholders may face unexpected charges if the freeholder decides to carry out expensive repairs or renovations to communal areas, often without the leaseholder’s input.
- Flats vs Houses
- Flats are typically sold as leasehold because multiple owners share a single building. Leasehold allows for a more structured way of managing communal spaces and responsibilities.
- Most houses are freehold, though some developers have recently sold houses as leasehold, which can lead to complications. It’s worth being cautious if considering a leasehold house.
Extending a Lease or Buying the Freehold
If you own a leasehold property, you may have the option to extend the lease or purchase the freehold outright, depending on your circumstances.
- Extending the lease: You can usually extend the lease after owning the property for two years, though the process can be costly. Extending before the lease drops below 80 years is crucial, as this is when the cost begins to rise significantly.
- Buying the freehold: In some cases, leaseholders can collectively purchase the freehold, turning their flats into share-of-freehold properties. This process can give more control over the building and reduce costs like ground rent, but it’s often a lengthy and expensive process.
When choosing between freehold and leasehold, it’s essential to weigh the costs, control, and long-term implications. Freehold offers full ownership with fewer ongoing expenses, but leasehold may be more affordable upfront and is often the only option for flat buyers. However, potential lease restrictions and costs should be carefully considered to avoid complications down the line.
If you’re unsure which option is best for you, consult with a mortgage advisor at Quick Mortgages. We can help guide you through the process and make sure you find the right property and mortgage for your needs.
Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
