Understanding the difference between the two is important, so here’s what you need to know.
If a property is labelled as freehold it means the sale price includes the building and the land it is built on. Purchasing this type of property means:
-There’s no annual ground rent: Ground rent is an annual fee paid by the building owner to the landowner under the conditions of a lease. This may be fixed or may increase over time.
-You can make changes to the property: You can make alterations to the inside and outside of the property whenever you like.
-Maintenance is your responsibility: If anything needs to be repaired it’s up to you to get it done.
When you buy a leasehold property, you’re leasing it from the freeholder for a number of years. Most leasehold properties have a lease term of between 90 and 120 years, but it can be as low as 40 or as high as 999. Purchasing this type of property means:
-The freeholder is usually responsible for maintenance: Any issues with the property - a leaking roof, for example – will be fixed by the freeholder.
-You will have to pay fees: This includes ground rent, annual service charges and a share of the building insurance.
-You’ll need permission to make changes: If you want to do any major works to the property, you’ll have to request permission from the freeholder.
-There may be other restrictions: These will be set out in your lease agreement. For example, you may not be allowed to have pets.
Share of freehold
In some instances, leaseholders of flats may have the opportunity to purchase the freehold as a collective. This means that the each of the leaseholders owns a share in the freehold and will have to take on the responsibilities that were previously taken care of by the freeholder.
Why does it matter?
When buying a property, particularly a house, freehold is usually the preferred choice. But if you are looking at buying a leasehold property, you should keep these things in mind:
-It’s best to avoid anything with a short lease: A short lease term is usually considered to be anything under 80 years and mortgage lenders are unlikely to finance these properties. However, some lenders will provide the mortgage on the proviso that you extend the lease once you’ve made the purchase.
-You’ll have to budget for fees: Ground rent, service charges and buildings insurance can quickly add up, so don’t forget to factor them in to your overall cost.
-Re-sale can be an issue: Re-selling a leasehold property with a short lease can be incredibly difficult. This is especially true if lease extensions are not easily obtainable.
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