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Freehold vs leasehold properties

Even if you know what leasehold and freehold properties are, figuring out which is the best option for you can be confusing.

Freehold vs leasehold properties


Everyone has an opinion on freehold and leasehold properties, and different buying options will suit different people. If you’ve been warned off leaseholds, or don’t know if freehold is for you, consider the advantages and disadvantages of each.

Cost

Freehold is often more expensive than leasehold at the outset. Similarly, freehold often applies to houses rather than flats, so they are naturally more expensive. However, it’s worth doing a long term comparison, as although the freehold may cost more upon buying it, leasehold buildings often come with ground rents, service charges and even admin fees. It’s also worth making sure that these ground rents can’t be increased or sold off to a third party – check the paperwork and get a clear estimation of those extra costs. Also, if you need to renew the lease, that’s another cost to consider.

Timing

When you buy a freehold property, it’s yours until you want to sell it. Leasehold properties are more complex in that the lower the lease becomes, the more the value will drop. Trying to sell a property with a short lease can be problematic. Your other option, of course, is to apply to renew the lease, thereby giving yourself more time, and increasing your resale value. But this can cost up to 20% of the value of your property, and isn’t always straightforward.

Control

With freehold, you are the king or queen of your kingdom – the property is yours, and subject to any planning permission necessary, you can do what you like to it. With a leasehold property, though you may have the opportunity to repaint or redecorate as you like, there may be certain restrictions akin to renting – like having pets, or making structural changes.

Perks

Leasehold does offer some advantages when living in a block – some flats will include access to a gym, have use of communal areas, parking, or a concierge. These are what you pay for with your ground rent and other payments, and they can make a big difference, especially with city living. Freehold owners will not get these advantages. 

Responsibility

Much like renting, one of the advantages of leasehold is that if work needs to be done on the property as a whole, the freeholder is responsible for arranging it. However, the leaseholder will probably end up paying for a portion of it, along with other leaseholders in the building. With freehold, you are completely responsible for your own property, so if you don’t want to fix the roof in the summer, come winter that’s your problem to deal with.

New Builds

There have been issues with leases and new builds, mainly in that some families have bought new build houses, assumed they were buying the freehold, and were actually buying the leasehold. The freehold was then sold to a third party, who increased the ground rents and fees to extortionate amounts. If you are buying a leasehold property, always check the contract about who owns your freehold, if it can be sold on and if there are any limits on much you can be charged. Also, ask to see how much more it would be to buy your freehold - often the difference is mere thousands, a good deal compared to the ground rents or lease extension fee you could end up paying.

The main issue with leasehold is the countdown of the timer – whilst a property usually increases in value as time passes, a leasehold property devalues as the lease goes on, and most people know they can swoop in at a cheap price when the years remaining on the lease are low. However, to put this in perspective, any lease over a hundred years is generally not going to be problematic - but really, the higher the better, up to 999 years. When leases start getting towards 60 years, there needs to be some thought as to whether you plan to sell or renew the lease.

Freehold Leasehold
More expensive sale price Cheaper initially but extra fees/service charge/renewal costs throughout
Buy permanently May need to renew lease
Complete control Some restrictions/permissions necessary (pets, subletting, building work)
No additional extras as part of your purchase Additional extras (gym/car park/manicured gardens/cleaned communal areas)
Responsibility for fixing the property Freeholder is responsible, but you may have to pay towards repairs.
 
Own the land the property is on New build – freehold could be sold to third parties, ground rents and charges could increase
Usually a house Usually a flat


Updated March 2020

 

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