Freehold v Leasehold: What is right for you?
Freehold vs Leasehold
Freehold and leasehold are the two legal terms that define the two different types of ownership of a property.
If you are looking at buying or selling your property, it’s important that you know the difference between these two terms and which one applies to your situation, as it will mean the difference between owning your property outright or having a landlord.
Freehold vs Leasehold: What is a Freehold?
As a freeholder you are registered on the land registry and you own the “title absolute”.
If you buy a freehold, you are the sole legal owner of the property and the ground it was built on. The majority of houses in the UK are freeholds, but some houses may not be, so its always important to check with the real estate agent.
As the owner of a property and its surrounding ground you won’t have to pay any annual ground rent and you will be solely responsible for the maintenance of the building you own.
That means that you won’t have issues with a freeholder not maintaining your property’s exterior to you standards or charge you extraordinary amounts for improvements and repairs you may not deem necessary.
This is one of the reasons why a freehold is most often the preferred option for many.
The Disadvantages of Finding a Freehold
Generally speaking, owning a freehold is considered to be a much more ideal option than a leasehold, but it still might carry some drawbacks.
If you are only interested in purchasing a freehold your options might be more limited, as in some areas such as London most flats and property are leaseholds only. This could make it much more difficult to find your ideal home.
The process to securing ownership of either a freehold or a leasehold can be complex and long-winded, but it doesn’t have to be.
With the correct legal guidance you will find that any obstacles you encounter along the way are actually fairly easy to overcome.
Freehold vs Leasehold: What is a Leasehold?
A leaseholder is someone who owns a property for the limited time period stated on their lease agreement and does not own the property outright.
The lease agreement is issued by the freeholder who owns the land and property and is often referred to as the landlord in such a situation.
In theory, leaseholders are not all that different to tenants in rented property.
However, leases tend to last much longer than your average tenancy agreement and as a leaseholder you hold much more responsibility compared to a normal tenant.
Leases can vary in length and can almost always be extended, with some leases even lasting as long as 999 years.
Flats, apartments and maisonettes are often leasehold properties, with the majority of property in London being sold as leaseholds.
Freehold vs Leasehold: The Disadvantages of Finding a Leasehold
One obvious downside to owning a leasehold is the impending expiration of a lease agreement if the lease is shorter as mortgage lenders often require a minimum of at least 70 years left on the lease before approving a mortgage application. If the lease has less than 70 years left at the time of buying or the time you are planning on selling you could run into some issues.
Shorter leases can be difficult to sell. If you are interested in owning a property with a lease shorter than 85 years, you should proceed with caution, as mortgage lenders will be more reluctant to work with you and it will also be much more burdensome to resell the property in the future, unless you extend the lease.
How can I Extend a Lease?
You can request for an extension on your lease from your landlord after living in the property for two years or more.
To extend the lease you will be a charged a certain price which is depend on the value of the property.
It is highly recommended that if you plan on extending your lease, you do so as quickly as possible in order to stop the property value from dropping.
It may also cost a great deal more to extend a lease that is short to begin with.
Freehold vs Leasehold: What is Best for You
Before you make a decision on getting a leasehold or a freehold, you should consider how your decision could affect your future plans for the property.
If you are planning on selling your home in ten years time, will there be plenty of lease left for the value to remain unaffected, and if you are thinking of an extension, will you be allowed to build one?
Depending on your budget, personal circumstances and future plans, a freehold may offer you the long-term stability and independence that you desire.
However, for some a leasehold will prove more desirable or appropriate to current personal circumstances.
You may prefer the lesser responsibilities associated with owning a leasehold yet still find peace in knowing you will have the property for life, if you wish this to be the case.
You can count on our conveyancing solicitors to act in your best interests throughout the entire home-buying process.
They will explain all matters in a jargon-free and straight-forward manner.
Freehold vs Leasehold, regardless of your choice, our conveyancing solicitors can help you with the purchase process.
Please don’t hesitate to contact us for advice today.