This month Blount and Maslin explain the difference between freehold and leasehold properties.
What is a Freehold property?
- The freeholder of a property owns it outright, including the land it’s built on.
- A person who owns the freehold interest in a property may grant a lease on it to another person, the leaseholder.
- Most houses are freehold but some might be leasehold – usually through shared-ownership schemes.
- If you buy a freehold property, you’re responsible for maintaining both property and land, so you’ll need to budget for these costs.
What is a Leasehold property
- A leasehold involves the temporary right to occupy land or property.
- Most flats and apartments in England and Wales are held on leases. A lease will be for a fixed term.
- Historically most flat leases were for 99 years, although more recent leases may be for 125 years.
- It is also not uncommon for leases to be for 999 years.
- If you own a leasehold property, you don’t own the land.
- This means you won’t be responsible for maintaining and running the building. The landlord will do this or appoint a managing agent to do so for them. However, the leaseholders share the costs of this by paying a service charge to the landlord.
- You might also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.
Things to consider...
What are benefits of a freehold?
- A freehold property tends to maintain its value when the property market remains even, and will increase in value when house prices rise. However a leasehold property will lose value over time.
- At the beginning of a long lease both freehold and leasehold properties can be a similar value. However, as the lease gets shorter, the leasehold property reduces in value.
Things to consider when purchasing a leasehold:
- How many years are left on the lease.
- How you’ll budget for service charges and related costs.
- How the length of the lease might affect getting a mortgage and the property resale value.