There is more than one way to own a home… freehold and leasehold are two different types of ownership. Read on to find out what makes them different, and which suits your circumstances better.
What is leasehold?
Leasehold ownership is normal for flats and apartments, which are inside a building owned by the freeholder. The land on which a property is built is owned by the freeholder.
As the leaseholder, you would own the property for a fixed period of time, and when it expires, ownership of the property returns to the landlord or “freeholder”. A typical lease length is 99 years, but they can be longer or shorter. To extend a lease you’d need to seek permission (and potentially pay a sum of money) from the freeholder.
How important is the length of a lease?
The length of a lease can vary hugely from home to home. A standard length is 99 years, but they can be as long as 999 years! Always check the property listing. If you have found a home with a lease shorter than 90 years, be sure to ask your mortgage adviser if your main mortgage lender will lend on it, as it is not guaranteed.
Bear in mind that properties with a shorter lease will be harder to sell, or may have a reduced market value later down the line.
If you wish to extend the lease of your home, you must have been living in the property for a minimum of two years. Applying for a lease extension can be a long process, or it may be relatively simple - it all depends on the freeholder. Normally you will need a solicitor or conveyancer to represent you in the process.
Be smart about buying a leasehold property, and ask about:
- Length of the lease
- Cost and likelihood of extension of the lease (freeholders aren’t obliged to grant an extension)
- Fees payable to the freeholder for the upkeep of the building and any land attached to the property (this may include ground rent, annual service charge, maintenance fees and a share of the buildings insurance). If you are paying towards the upkeep of the freehold, find out what this involves and how often the building is serviced
- Whether your future plans for the property would be accepted by the freeholder (eg. loft conversion; rental property; quick sale)
- Pay additional costs of owning the property: ground rent, service charge, maintenance fees and a share of insurance for the buildings (these extra costs can affect your overall affordability as calculated by the mortgage broker)
- Seek permission for any property plans that would involve a change in use or appearance
- Have minimal responsibility for upkeep and maintenance of the building and land attached (halls, roof, stairwells, garden, etc)
- Most likely type of ownership if you are buying a flat or apartment
What is freehold?
In contrast, if you buy a freehold home then you become the outright property owner, including the land it is built on. This also means you are responsible for the maintenance and upkeep of the property up to its boundaries.
- Don’t pay any annual ground rent or service charge
- Free to make any alterations to the property that you wish to - as long as they comply with government regulations and local planning permission is granted
- Own the home until you choose to sell it on
- Responsible for maintenance and repairs over the whole of the property
What is “share of freehold”, or commonhold?
It is possible today to buy the freehold owners out, if enough leasehold neighbours of the same building agree to unit and do so. They would then each have a share of freehold.
The freehold of the building is still run as a unit but each of the leaseholders would own a share of it. There would be no limit to their lease length, and they would pay minimal or no ground rent. Buying the freehold of a property in this way is a legal process. It can be a long and complex journey as so many individuals are involved.
So what should I choose?
Many first time buyers are motivated by the thought of having independence from landlords, being able to modify the property how they want it, and no longer paying rent. For this reason, buying a freehold or share of freehold property can be very attractive.
On the other hand, you will need to put some money aside for the maintenance of building features such as roofs, gutters and fences. You will be responsible for the upkeep and maintenance of the building and land upon which it stands.
Many flats and apartments are only available on a leasehold basis. If this is your preferred type of home, you may be better placed to include leasehold properties in your search. You may have to pay ground rent and a service charge, but ultimately it will be another person’s responsibility to take care of the building, hallways and any land attached to the property.
Ultimately, if you have a very specific area in mind, it is likely that your affordability will dictate whether you can buy a leasehold flat, or a freehold house. Always check the property description to see if the flat comes with a share of the freehold, as this can significantly change the way you inhabit the property.