You’re reading this because you’re looking into buying a house. You’ve heard these words, freehold and leasehold. You’re stumped.
You’re not the only one. But knowing the difference is important and actually isn’t as tricky as it may seem.
So, What Do They Mean?
There are essentially two different ways of owning a home: freehold or leasehold.
If you buy a freehold property, you will own the building and the land it’s on with no time limit. However, you’ll have to budget for any additional cost for maintaining the property and, potentially, the land under it.
With a leasehold, you have a (usually very long-term) lease from the freeholder that allows you to own the property for a number of years. While the freeholder will normally be responsible for the upkeep of the shared parts of the building (from the entrance hall to the roof), you as a leaseholder will have to pay the freeholder maintenance fees, annual services charges and even an annual ground rent. Again, these are costs you will need to consider from the outset.
Property expert Caroline Takla of buying agency The Collective LLP says: “The ground rent is an important factor in determining the lease extension cost in the future so it’s important that your solicitor reports on this to you.”
That Sounds Expensive…
It can be, with leaseholders feeling powerless to change the fees that freeholders set. Even on a standard flat the charges can easily add up to between £1,000 and £2,000 a year. Find out more at the HomeOwners Alliance.
With a freehold property you don’t have these fees because you‘re the freeholder. But it’s your responsibility to pay the unpredictable costs involved with owning the property – leaky gutters, broken tiles, burst pipes. . . all that scary stuff.
What Kinds of Property Are Freehold or Leasehold?
There is no hard and fast rule as to whether a property is freehold or leasehold, it all depends on the history of the building and the previous owners. When there is only one home on the land that the building sits on, that property will more often than not be freehold. Leasehold properties are usually where there are a number of homes on the same plot of land – like a block of flats, for example.
Sometimes, all of the properties within a building can own a share of the freehold, this is called a shared freehold. With shared freehold, everyone owns a percentage share in the freehold and therefore everyone pays towards the upkeep of the shared parts of the building.
Do I Have a Choice?
Many flats are leasehold, so there are a lot of homeowners who have trodden this path before you. The key thing is to know what you’re getting into. Get a solicitor used to dealing with leasehold properties to guide you.
Before you sign those mortgage deeds, make sure you know exactly what charges you would be expected to pay to the freeholder. The other essential thing to know is the length of the lease.
The Longer the Better
Once a lease runs out, the ownership of the property reverts to the freeholder. So avoid shorter leases like the plague.
By shorter, anything less than 90 years (yes 90 years) is worth being concerned about. Certainly after 80 years, the resale value of the property starts to fall swiftly because fewer people will want to take on such a short lease when you decide to sell it.
“If you want to play it safe, we would recommend not considering leases less than 100 years,” Caroline says. You normally have the right to extend your lease, but this can be stressful and expensive. “As the lease goes down, especially below 80 years, it becomes a lot more expensive to extend.”
Great news! You’re now a freehold and leasehold whiz. That’s the hard bit over*.
*Not really, there’s still quite a lot of things to suss out in the search for your dream home. But understanding freehold and leasehold makes you one step closer to finding it.