Guide, Investment

SORTED: THE DIFFERENCE BETWEEN FREEHOLD AND LEASEHOLD

The difference between freehold and leasehold – the ownership in the UK.

When you wish to go ahead on the property ownership in the UK, you should familiarise yourself with Leasehold and Freehold.

LEASEHOLD

When you buy a leasehold property, you buy for a fixed period.

The time is usually 99 years, whistle new properties usually have longer ones, even of 999 years.

In this case, you don’t own the land where the property sits, which right is with the freeholder. Flats are usually sold as leases and the owner has to pay yearly service charges for the maintenance of the building and ground rent

Rent and service charges can increase in time and it’s important to ask your solicitor about the rental projections on any leasehold purchase. Campaigners have suggested capping ground rents at a tiny percentage of the property’s value to avoid unexpected rises.

DRAWBACKS

A drawback to leasehold is that due to the set amount of years of ownership they are technically a dwindling asset.

When the lease period diminishes, especially below 80 years, it’s difficult to sell a property and the bank will be less likely to grant a mortgage.

An owner can always extend the lease, which can be pricey… but it will add a lot of value to the property.

Consumer groups have advocated extending leases but warn that you must take into account the costs incurred by legal advice, the lease extension valuation report by a surveyor, your freeholder’s reasonable legal and own valuation costs, which you are required to pay by law, and Land Registry fees.

FREEHOLD

Freehold is the easy option where you own the land and property.

You will never have to pay for ground rent or services charges. Neither you have to care about residents regulations and planning some works would be easier.

Most houses in the UK hold a freehold tenure, but some of the new-built ones are actually or leasehold or part-freehold leases.

SHARE OF FREEHOLD

And here we go again. Another tenure.

This allows you to own your flat outright, although works differently from owning a house freehold.

With the share of the freehold, you will have a leasehold property but residents can start a new freehold organisation can grant new leases of long length, say 999 years, with a peppercorn ground rent.

This is preferable for technical reasons for owning a flat freehold, which causes problems with insurance companies and mortgage lenders.

LINKS FOR YOU

Do you have some question? Contact one of our experts.

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