What's the difference between freehold vs leasehold properties?
If you’re a first-time buyer, one of the first things you’ll need to grips to with are the notions of freehold and leasehold. Read on and we’ll help you make sense of things and work out which ownership category best suits you.
What’s the main difference between freehold and leasehold?
In a nutshell, if you own the freehold to your property you own the building, as well as the land on which it was built.
Conversely, when you buy a leasehold property you own the property alone. You don’t own the building or land on which it is built. As a result, you’re usually obliged to pay ground to the freeholder, who owns the building and the land.
What does 'leasehold' mean in practice?
When you buy a leasehold property, you’re effectively buying a lease that confers the right to live in a property for a pre-determined number of years.
For this reason, with leasehold purchases at no stage do you own the house/flat outright.
Instead it remains the property of the freeholder/landlord, who also owns the ground on which it’s built.
Leaseholds are most common when you buy a flat, where the block and surrounding outdoor spaces are owned by the landlord/freeholder.
What does 'freehold' mean in practice?
Owning a property’s freehold means every facet of your home belongs to you. That means you own everything from the land it’s built on to the bricks that it’s made from.
Owning a freehold means that you’re free to make changes or improvements to your home or garden and you can sell up at your discretion too.
Freehold flats do exist, although they’re rarer than leaseholds. Where flats are freehold, what that typically means is that you own a share of the freehold, along with the landlord/builder and others in the same building.
Most commonly, though, a freehold is much more likely to be a house, most of which in the UK are sold as freehold.
What are the pros and cons of leasehold?
Pros
Upkeep and repairs usually aren’t your direct responsibility: With you and other leaseholders contributing to upkeep through a 'leasehold management fee', you’ll share the expense of pricey repairs (such as roof repairs and keeping communal areas looking presentable
Freeholder sorts the buildings insurance: You’ll typically still pay for this (usually via your service charge), but it’s not your responsibility to deal with the insurer or source quotes
You can usually pick up a leasehold property cheaper: It’s not uncommon for leasehold flats to be as much as 25% cheaper than freehold flats (depending on location)
Possibility of extending lease by buying freehold: Flat owners can often pool their funds to buy the freehold of their block, and then extend their leases to 999 years
Cons
You pay service charges and ground rent: This can take a bite out of your monthly budget. And can increase substantially over time too
Short leases can be a financial risk: Not least because they can make it harder to sell a property, and extending the lease can be expensive
Refurb and extensions require permission: The freeholder will have to give you written permission and there’s no guarantee they’ll approve your plans
Go deeper: What happens when a leasehold expires?
What are the pros and cons of freehold?
Pros
You don’t have to worry about the lease running out: Once you own a freehold property, it’s yours until you decide to sell
No service charge to pay: With no set, recurring charges for which you're liable, you’ve got more money in your pocket. And you’re spared the expense of ground rent too
Easier to sell than freehold: Freehold properties tend to attract a premium price - with the caveat that you’ll likely have paid more for the property to begin with
You’re more in charge: You’re much freer to make changes to your property with freehold and you’re in control of how much to spend on maintaining it and which suppliers to use
Cons
Upkeep expenses fall on you alone: With freehold you’re solely responsible for paying for maintenance of the building and grounds. That be can expensive if major repairs are required, which is why it's a good idea to get a decent survey done when viewing the home
Buildings insurance is your responsibility: Unlike leasehold, you’ll have to sort buildings cover and deal with insurers
You may have to find more money initially: Freeholds typically attract a premium price, so can put an additional financial burden on you. Especially if you’re a cash-strapped first-time buyer
Is a 999-year lease the same as a freehold?
That’s subjective. But it’s certainly fair to say that some people generally regard a 999-year lease as being as good as a freehold, on the grounds that there’s no concern that the lease will run down to a point where the property becomes hard to sell.
But, of course, a 999-year lease and a freehold aren’t functionally similar in many ways. Not least the fact that even though the lease is long, the leaseholder is still obliged to pay ground rent and service charges.
What’s more, leaseholders are subject to restrictions on property alterations that don’t apply to freeholders too.
Can a freehold be sold?
Yes, it can. Regulations stipulate that a freeholder can sell the freehold whenever they wish. But with the proviso that they must offer the Right of First Refusal to qualifying tenants.
If the tenants/leaseholders are not interested in buying the freehold, the freeholder is at liberty to sell the freehold to another buyer on the open market.
Other useful guides
Compare mortgages with MoneySuperMarket
Looking for first-time buyer mortgage to take your first step on the property ladder? Or perhaps you're looking to remortgage?
Either way, it’s easy to find and compare mortgages from a range of leading lenders with MoneySuperMarket.
Whether you’re looking for a fixed-rate, a tracker, or a discount mortgage, our mortgage comparison tool can help you find a great deal for you.
We’ll just ask you a few questions about the property you’re looking to buy or remortgage and how much you’ll need to borrow.
We’ll then show you results including the initial interest rate and your monthly repayments and any product fees you’ll be asked to pay.
