Freehold versus Leasehold

Finding the right property is clearly a pivotal decision when you are looking for your first (or next) move; there is much to consider. One crucial factor in England and Wales is whether to buy a leasehold or freehold property.

In simple terms, if you have a leasehold property you own the space you live in and someone else (either a landlord or collective of you and other owners) holds the land and communal areas. A freehold means you own the property and the land it is associated with on the property deeds.

Broadly, the majority of houses are freehold and the majority of flats are leasehold, but there are a few notable exceptions. There are dozens of 'new towns' dotted predominantly around the UK's larger cities. These were largely built between the late 1940s and 1960s to replace housing destroyed or damaged in the Second World War. Many of the properties in these areas are subject to the framework of the Commission for the New Towns. If you find a house in such an area, it may have some or all of the restrictions normally associated with a leasehold property.

Generally speaking, houses cost more than flats in the same area, so this could be another major factor for you to consider, depending on your budget.

Share of Freehold

Share of Freehold are still are effectively leasehold properties (flats and maisonettes) where the individual home owners each have a say in the lease and general maintenance of the building and grounds. You'll also share the bill for any works so make sure your solicitor finds out if there is anything planned that you may be asked to contribute towards.

Flying Freehold

Flying Freehold properties are rare. The term is often used to describe properties where part of the upstairs flat shares floor space with the downstairs one. Be careful with these as lenders often won’t offer mortgages on them.

Communal Entrances

If a communal entrance leads directly to the space you are interested in purchasing, meaning anyone who gets into the block can get into your home or your part of the property, it's likely a surveyor and solicitor would advise against purchasing.

Length of Lease

The length of the lease can be very important. Only your solicitor can confirm the lease term and it’s very wise to obtain this information before you part with serious money or legally commit to buy. If it's 75 years or over this is fine, although the longer the better. If it's under 75 years, you may have difficulty getting a mortgage without extending the lease, which could cost you thousands.

Boundaries

Check your boundaries, more particularly with freehold property and especially if you plan to extend or refurbish. Make sure you know what you (and your new neighbours) are responsible for.

New Build Properties

Traditionally, leasehold property owners could be charged a minimal ground rent. However, it’s important to be aware that developers have started to introduce clauses into leasehold contracts making it so the ground rent doubles every ten years.

Understandably, this can spell devastating results for buyers. And ground rent isn’t the only way freeholders are able to obtain money from leaseholders; they have found a variety of ways of doing so.

The implications can be highly detrimental for the leaseholder – and this can apply to flats too – including issues when they come to sell.

With an extraordinary rise in freehold prices, the government is likely to step in. That said, it’s important to be aware. And to protect yourself from such traps.

Guidance

Talk to your solicitor, mortgage broker or adviser or your own surveyor if you have appointed one. We are always happy to discuss any of these types of properties – and others – if you feel you could use some help.

January 2018