Freehold vs leasehold – what’s the difference?

Knowing whether you’re buying a freehold or leasehold is important, and it’s something that your solicitor is likely to bring up very early on in the property purchasing process.

So, what is the difference between freehold and leasehold, and how will it affect you when buying a property?

block of flats

What is the difference between freehold and leasehold?

The main difference between freehold and leasehold property is who owns the land your property sits on.

What is freehold property?

If you own a freehold property, you own the land the property sits on, as well as the property itself.

What is a leasehold property?

If you own a leasehold property, you own the property, but have purchased a temporary ‘lease’ for the land the property sits on. Someone else retains ownership of the land and you pay them a fee to live on it. If you don’t extend the lease on the property, you must leave the property when the lease runs out. Without a valid lease, you will not have the right to use the land the property sits on.

A detailed and lengthy lease document will outline your contractual obligations when you purchase the property. Information outlined in the lease document may include details of the ground rent payable (the fee you pay to rent the land the property sits on), any service charges (this is particularly likely to apply if you’re purchasing a flat), and any other areas of responsibility.

Lease documents will usually feature complex legal language, so if you struggle to understand the requirements set out in the document it is important to seek legal advice from a conveyancing solicitor who can clarify any areas you’re unsure of.

What is share of freehold?

Share of freehold is a term that can cause confusion. It effectively combines both freehold and leasehold.

Share of freehold means the property is still a leasehold property, but you co-own the freehold with other parties. This is a common arrangement with flats, especially in London.

There are two different options for how share of freehold can be managed. Either you and the other flat owners within the building will jointly own the freehold between you in your personal names, or a company will own the freehold and you will each hold a share in that company.

Your solicitor will be able to explain the exact circumstances of the arrangement if you buy a property with share of freehold.

Is my house freehold or leasehold?

When you first view a property, the estate agent (or owner) should make it clear whether the property is freehold or leasehold.

If the property is leasehold, you will want to gather as much information as possible before making an offer. The terms of the lease will have an impact on your affordability and should be taken into account before proceeding.

What are the disadvantages of buying a leasehold property?

There are several aspects of buying a leasehold property that will need careful consideration, including:

Decreasing time on lease

When you own a leasehold property, the amount of time left on the lease will decrease each year. As the time left on the lease begins to run out, it will have an impact on the value of the property. 

Traditionally, leases were set for 99 years. These days, however, it is not unusual to find properties with leases of 125 years, 250 years or even 999 years. Any property with fewer than 100 years left on the lease is likely to be more difficult to mortgage. This means it will have a lower value than a similar property with a longer lease, or a freehold property. If your property has a short lease, it is like to be difficult to sell, so you may need to consider paying to extend your lease.

Ground rent

Most leasehold properties will charge ground rent, which is payable to the freehold owner. Ground rent costs will vary, but for a long lease property you can expect to pay around £50-£250 per year.

If you fail to pay any ground rent that is due, your landlord can take legal action.

Maintenance and service charges

You may also be required to pay an annual maintenance and service charge. Alternatively, you may be required to contribute to ad hoc repair costs. This is likely to be more of an issue if you are purchasing a flat, but many new build houses also charge a maintenance and service charge to cover the upkeep and management of communal areas within the development. This is an added cost for you to consider when buying your property. It may also have an impact when it comes to selling your property.

Other restrictions

A leasehold property may have other restrictions. These can affect how the property can be used and what changes can be made to it. You should check through the lease carefully to ensure you have a clear understanding of any additional restrictions.

Is it hard to sell a leasehold property?

If your property is a flat, buyers will expect it to be leasehold. It is unlikely to raise too many questions from prospective buyers.  

Buyers can be a little more cautious when buying a leasehold house. This is because a leasehold property is likely to come with additional responsibilities and costs. As long as you have all of the necessary leasehold information to hand, and the lease has a decent amount of time left on it, you hopefully won’t have too many problems.

Leasehold property depreciation rate

One reason buyers may be a little more cautious of purchasing a leasehold property is the depreciating nature of a leasehold property. The shorter the lease, the less the property will be worth. Any property with fewer than 70 years left on its lease is likely to be unmortgageable.  

If you’re keen to sell your property and it has fewer than 70 years remaining on the lease, you may be wise to look into paying to extend the lease before you put it on the market.  If you’re short of time or money, and don’t want the hassle of extending the lease, you’ll need to be aware that only cash buyers would be able to purchase the property.

Find out more about:

Is it worth buying the freehold for my house?

If you have the opportunity to buy the freehold for your house, it is definitely worth exploring. Owning the freehold will give you more freedom and make your property more desirable when you want to sell.

How much does it cost to buy the freehold for your house?

Several things will impact the cost of buying the freehold for your house. This will include the value of the property, the number of years left on the current lease, and how much ground rent you pay. Compare My Move suggest that the average cost of buying the freehold for a property is £6,000.

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Author:

Danny Luke

Danny Luke

As Managing Director, Danny is responsible for the overall performance of Quick Move Now and provides strategic guidance and direction to all its employees. Danny is committed to making Quick Move Now the leading and most trusted home buying company in the UK.
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