When you’re starting to climb the property ladder, it’s easy to get overwhelmed by the jargon in the world of buying and selling property. Contrary to what you may think, there is more than one way to own a property – you can own a property as freehold or leasehold.
Which you choose between leasehold and freehold will be dependent on your needs, and the property that you are hoping to buy. Find out more about leasehold vs freehold properties in the UK and the benefits of each.
What is the difference between freehold and leasehold?
Both freehold and leasehold are ways to own a property in the UK. With a freehold property, you own both the property and the land it’s built on. Whereas with a leasehold property, you only own the property for the length of your lease and not the land.
With a freehold property – as you own the land and the property – you are responsible for its maintenance, so this should be included in your budgeting when considering your purchase. With leaseholds, you do not own the land so are not responsible for its maintenance. Another difference between freehold and leasehold properties is that when the lease ends on a leasehold property, ownership will return to the freeholder who leased the property to the leaseholder
Benefits of freehold vs leasehold properties
Both freehold and leasehold properties have individual benefits that should be considered when deciding which option is right for you. We’ve broken down the benefits of each to give you a better idea of which will work for you.
Benefits of freehold properties
- The ability to make changes to the property – because you will be the owner of the property and land it is built on with a freehold property, you have the right to make any changes you see fit to the property and land. This gives you the freedom to create an environment that is truly unique and personalised to your taste.
- No ground rent or leasehold fees to pay – freehold ownership means that you have no landlord charges, service charges or ground rent to pay. This could save some homeowners money in the long run.
- Your tenancy won’t run out – as you own the property and land for as long as you’d like to with a freehold property, you don’t have to worry about your lease running out and the freeholder securing another owner in your place.
- Opportunity for income – you can do as you wish with your freehold property, including renting it out for some extra income.
Benefits of leasehold properties
- You aren’t responsible for carrying out maintenance – with a leasehold, the freeholder is the person responsible for the maintenance of the property. However, you will likely have to fund the maintenance.
- The freeholder sorts the building insurance – while you may have to contribute to the cost, the freeholder often takes care of securing building insurance meaning you don’t have to worry about it.
Disadvantages of leasehold vs freehold
Where there are pros, there are usually cons too. It’s also important to consider the drawbacks of freehold and leasehold properties to get the full picture before making your decision about freehold vs leasehold.
Disadvantages of freehold properties
- Higher outright cost – when purchasing a freehold property, the outright cost will likely be greater than that for a leasehold property. However, you will benefit from not having to pay ground rent or service fees.
- You are responsible for property and land maintenance – unlike with leasehold properties, with a freehold property you are solely responsible for the maintenance and upkeep of the property which can be both time-consuming and costly.
Disadvantages of leasehold properties
- Written permission needed for changes – if you’re hoping to change some aspects of your leasehold property, you’ll need written permission from the freeholder. This can make it difficult to make the property seem like your own.
- There are fees to pay – with a leasehold, you’ll have to pay ground rent to the freeholder, as well as other leasehold fees. This all adds up – so while you may be able to buy for cheaper, it could cost you more in the long run.
- Lease length is very important – if a property has a lease of around 80 years, it becomes a liability. Extending a lease can be both time-consuming and an expensive process.
If you’re ever in any doubt about choosing a leasehold vs freehold property, we always recommend consulting a financial advisor as well as a respected estate agent to get the best advice for your situation.
Buying a house leasehold vs freehold
When it comes to actually buying the property, there are certain things you need to be aware of depending on if the property is freehold or leasehold. From lease length and extending your lease to buying the freehold for your leasehold property, some insider knowledge goes a long way.
The amount of years left on a lease for a leasehold property is incredibly important and should be a major factor in deciding if a leasehold is right for you. Leases at or approaching 80 years should be carefully considered. Once a lease drops below 80 years, ‘marriage value’ – the increase in value of a property once its lease has been extended – will need to be paid to the freeholder. However, an overhaul of lease extensions is planned, wherein ‘marriage value’ is proposed to be abolished.
It is possible to buy the freehold for your leasehold property if you have owned the property for over two years or more. For a house, this can usually be a straightforward process with the help of a solicitor. If you’re hoping to buy the freehold on your property in a block of flats, all of the owners would need to do this jointly.
What is a share of freehold?
Share of freehold is when you own the leasehold for your property, and a share of the freehold. The freehold is usually shared with other flats in the building. There are two main ways to have a share of freehold:
- Limited company – where a private limited company is set up and registered as the freeholder, with co-owners registered as shareholders and directors of the company.
- Personal names – sometimes known as ‘tenants in common’, each co-owner is on the freehold with an equal share.
Share of freehold gives you more control over your home and is often a good option if you’re sharing it with just one or two other flat owners.
Taking the advice of a trusted estate agent, as well as seeking legal and financial advice, can help to mediate any risks when buying a property and deciding between freehold or leasehold. They will also be able to inform you of everything you need to know about potential fees payable to the freeholder or how to go about extending a lease.