What’s the difference between a leasehold and a freehold?
Our friends over at LPL Solicitors explain the differences between a leasehold and a freehold property.
When it comes to buying a property, you will no doubt come across the terms freehold and leasehold. It is important to know the difference.
By taking the time to understand these terms, this may help you decide which option is right for you when selecting which properties to view. Even if you can’t decide, you’ll know the relevant questions to ask.
What is a freehold property?
When you buy a freehold, you are purchasing both the property and the land it is built on outright. This means you are responsible for maintaining these. Most (but not all) houses in the UK are freehold.
The main benefits of a freehold include:
- Not having to pay annual ground rent to a landlord;
- Not having to worry about a leasehold agreement running out;
- Not having to rely on someone else to make improvements (or charging you above the odds for doing so).
What is a leasehold property?
When you buy a leasehold property, you take over the lease from the previous owner. You have an agreement with the freeholder (sometimes called the landlord) to use the home for a set number of years. Leases are usually long-term, but they can run out. And, when they do, ownership returns to the freeholder, unless you can extend the agreement.
Because of this, there are some things you must think about before buying a leasehold. This includes:
- Establishing how many years are left on the contract;
- Finding out whether you can get the lease extended;
- Finding out what you will be charged by the freeholder for annual ground rent, service charges, and other related costs;
- Finding out what you will be charged by the freeholder for extending the lease.
Most flats in England in Wales are leasehold. However, in Scotland, most properties are freehold.
Things to be aware of with a leasehold agreement
With a leasehold, depending on the length remaining, you might struggle to get a mortgage. Most lenders will only provide a 25-year mortgage if the agreement has at least 50 years left. Your property’s resale value will also be affected by a short lease. It can be challenging to sell a home if the remaining lease is for less than 80 years.
You can extend a leasehold
The good news is, once you’ve owned your home for two years, most people have the right to extend their lease by 90 years (as long as the original term was for more than 21 years). But, be aware that the freeholder will almost certainly charge you for doing this.
If you’re ready to purchase a home, we can help explain the difference between leasehold and freehold agreements in more depth and talk you through your options. To contact one of our expert team, please contact LPL on 0333 305 5249 or visit our website at www.lpropertylawyers.co.uk for more information.