06/09/2022
What Is The Difference Between Freehold and Leasehold and Which One Should You Buy?
Searching for a home can seem like a daunting experience, especially if you’re a first-time buyer. There are many different things to take into account when it comes to buying a house. For example, if you’ve been looking to buy a property recently, you might have come across the terms freehold and leasehold. Thus, asking the right questions can help you make an informed decision when it comes to buying a house.
In this post we’ll explain the difference between freehold and leasehold to help you understand what you can and cannot do with a property depending on its tenure. Once you begin your house search, be sure to ask whether the property you’re looking at is freehold, leasehold or commonhold (although less common), as these can mean very different things.
If you’re a first-time buyer and would like more information to guide you with the process of buying a home, you can read our First-Time Home Buyers’ Guide.
What is a Freehold?
A freehold is a form of home ownership in the UK. When you buy a property that is freehold, you’re essentially buying the property and the land that it sits on. This means that you’re the sole owner and you own the land and the property forever, unless you decide to sell off your property to another buyer.
Freeholds are the most common type of ownership for houses, however, there are some houses that are sold as leasehold, typically new build homes. Therefore, never assume that a house is freehold, and always ask what the tenure of the property is before you consider buying the house.
What is a Leasehold?
Leasehold is another common form of home ownership and purchasing a leasehold property means that you own the property but not its land. In other words, you lease ownership of your property from the freeholder (the entity that owns the freehold of a property that can include a building or land) for a set period of time. The term of the lease can vary between 99 to 999 years. When you sell a leasehold property, the lease is passed on to the new buyer and the number of years continues to decline.
Flats, apartments and shared ownership homes are typically sold as leasehold properties. In recent years there has been a trend for new build homes to be sold as leaseholds, although the government has attempted to put a stop to this. If you are purchasing a house that is leasehold, ensure you’re happy with the terms before you proceed as there are other costs associated with these types of properties.
Should you buy a Freehold or Leasehold?
Deciding whether to buy a freehold or leasehold will depend on your personal circumstances and preferences, but the first thing you should decide is if you want to live in a flat or a house.
If you prefer flats and apartments then you’d most likely be purchasing a leasehold and will need to take into account the extra cost and restrictions that come with it. Another important factor is the length of the lease. Shorter leaseholds, typically anything under 85 years, can be troublesome because if the term of the leasehold goes down to zero years, the property will revert to the freeholder. You might also run into trouble when trying to sell your property because it will affect the value of your home and some lenders may be unwilling to mortgage the property. Further, if you are faced with extending your lease in order to sell, you’ll be looking at a very costly and complicated process.
Moreover, the charges associated with leasehold properties can include having to pay ground rent, normally charged annually. Depending on the terms of your lease, the ground rent could go up every few years. You’ll also be responsible to pay maintenance fees such as service charges. The maintenance fees you pay will go towards maintaining the common areas of the building and the freeholder is usually responsible for carrying out the required work.
Lastly, the lease contract you sign will explain your legal rights and responsibilities and may include restrictions, such as not owning pets or your inability to sublet your property. Furthermore, if you decide to carry out major work or refurbishment, you’d need to obtain permission from the freeholder prior to making any changes.
On the other hand, when you buy a property that is freehold, most often a house, you are not required to pay any extra fees such as ground rent or service charge as you own the property outright and have the ability to maintain and manage the property as you wish. Although certain works such as adding an extension might require planning permission from council. You should always check with your local council prior to commencing work to ensure you’re not breaking any laws and to ensure you meet building control requirements.
Bottom line
You should always do your own research and find out whether the property you’re looking to buy is freehold or leasehold. If the property you’re purchasing is leasehold, find out what the length of lease, maintenance fees, ground rent, and any restrictions it may impose. When you purchase a leasehold, you may have the option to buy the freehold and would need to speak with the freeholder to see if they are willing to sell the freehold, although they are not obligated to do so.
Finally, you should also consider the cost of conveyancing as this is something you cannot avoid. Because there is more work involved with leasehold purchases, you will most likely end up paying higher conveyancing fees when purchasing a leasehold property as opposed to freehold.
Are you looking to buy a house in Liverpool?
Lavelle Estates offers tools and resources to help you with your home search. We have experienced estate agents in Liverpool that can help you and your family search for your next perfect home. Contact us today to speak with one of our agents or use our search tool to search for your next home.
