Freehold or Leasehold – what is the difference?

If you are unfamiliar with the terms freehold and leasehold as a first time buyer then don’t worry, as we explain what they mean and how this can affect the type of property you choose to purchase

Freehold or Leasehold – what is the difference?

Freehold property

First time buyers purchasing a freehold property will receive outright ownership of the property and the land on which it sits. A freehold gives buyers the right to live at the property for as long as they wish – there is no time limit on your period of ownership, you will simply own and occupy your home until you choose to move.

Moderations and alterations are allowed as you own both the property and its surrounding land for expansion. Keep in mind that any moderations you plan to make will need to be made within the constraints of the law and planning restrictions. Planning approval will be required to make structural changes to the property. This is even more important if you are thinking of purchasing older, listed buildings.

The advantage of owning a property freehold is that you have total control over what happens to the building with regards to any repairs or extensions.

Freehold properties available on the market to first time buyers tend to be houses, although there are an increasing number of flats becoming available in which some owners share the ownership (and subsequent responsibilities) of the freehold with the other flat owners. This is due to recent legislation that has given leaseholders the opportunity to buy up freeholds.

Leasehold property

First time buyers interested in purchasing a leasehold property should beware that leaseholds do not give you outright ownership of the property and the land within its boundaries. You are actually purchasing the rights to live in the property for a set period of time – often this is in the region of 100 years in total.

However, if you are purchasing a lease previously owned by someone else, it does not “reset” the duration of the leasehold. So, if they have lived in a property for 20 years of a 100 year lease, you are only purchasing rights to the remaining 80 years. This information should always be made clear on the estate agent’s details, but if you are in any doubt, ask your estate agent. It is an important piece of information that you need to know.

With leasehold properties you will have an obligation to cover the costs for maintenance repairs in the form of ground rent and service charges to the freeholder. You should take into consideration all additional costs of a leasehold before committing to the purchase of a leasehold property as you may find your budget cannot meet the extra fees. A lot of leasehold flats within blocks can command quite high Service Charges (for general cleaning of shared areas and maintenance), which are added to the ground rent costs.

So why do people choose to purchase leasehold properties? Most flats are currently leasehold, but buyers choosing to live in a block of flats will only have to pay a contribution to the overall ground rent split between all residents paid to the freeholder.

It is possible to extend the leasehold of your new home to up to 999 years giving you lifetime security, while recent legislation has made it easier to purchase the freehold for an additional fee. Extending the lease can be an expensive option and you will need to employ a property lawyer to liaise with the freeholder. Extending the lease of your leasehold can cost around 20% of the value of the flat. If the flat is unusually cheap, this can sometimes be due to a short leasehold so you should investigate the leasehold extension costs before confirming your offer.

Commonhold property

A recent addition to the property market in September 2004, commonhold properties are usually found with blocks of flats and other apartments. Put simply, a commonhold is a group of people who mutually own their block of flats with no overall landlord. Each flat or unit has a freehold owner, usually a member of a commonhold association that is responsible for maintaining the communal areas of the property.

The advantages of a commonhold are that all decisions regarding the building are made jointly by all owners. Owners can make decisions without the influence of a landlord that doesn’t have your best interests at heart.

The principles of freehold and leasehold property are generally straightforward, but make sure you choose a property with your long term financial circumstances in mind.

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