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September 28, 2017

Leasehold vs Freehold: Understanding the Differences

When looking for a property to buy, aspiring homeowners may be faced with a choice: leasehold vs freehold. But what are the differences?

Leasehold vs freehold: the basics

 

The main difference between leasehold and freehold is that if you buy a leasehold property, you own the property but not the land it stands on. With a freehold property, you own both the building and the land.

 

In England and Wales, the majority of flats are leasehold, while houses are usually sold as freehold properties.

 

Buying a leasehold property

 

With leasehold properties, the land the building stands on is owned by a landlord, also known as the freeholder.

 

You will own the property for the length of a lease agreement with the freeholder. After the lease expires, ownership of the property will revert back to the freeholder.

 

You’ll pay ground rent to the freeholder, although this usually won’t be very much. The freeholder will also be responsible for maintaining and running the building, so you can expect to pay a service charge to contribute to the cost of this.

 

Your lease explained

 

Your lease is a legal agreement between you and the freeholder stating how long you will have ownership of the building.

 

Residential leases usually last for up to 125 years when first drawn up, although it’s possible to have a lease that lasts for up to 999 years.

 

When buying a leasehold property, check how many years are left on the lease. It might be difficult to get a mortgage if the lease has fewer than 80 years left, meaning the value of the property will be affected.

 

Once you’ve lived in the property for two years you’ll have the right to extend the lease – you’ll pay a fee to the freeholder for this.

 

In some instances it may be possible to extend the lease before you move in through negotiation with the seller and the freeholder.

 

It’s also possible to team up with other leaseholders – for example, other people living in a block of flats – and buy the freehold to the property, meaning you’d each own a share.

 

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Proposed ban on leasehold new-build homes

 

In July, the government began an eight-week consultation into unfair leasehold practices, particularly focusing on spiralling ground rent clauses and the sale of new-build houses as leasehold properties.

 

Under the proposed reforms, leaseholds on new-build homes would be banned, and ground rents on flats would be cut – in some cases to zero.

 

The proposals came in response to reports by buyers who had experienced issues with new-build homes sold as leaseholds, and aim to make property ownership fairer.

 

The consultation closed on 19th September, and the government will now analyse the results – although there’s no indication how long this could take.

 

Leasehold vs freehold: A summary

 

Buying a home is an exciting step, but it’s important to understand the issues surrounding property ownership.

 

When it comes to leasehold vs freehold, the main difference is that as a freeholder you’ll own your property outright, while as a leaseholder your ownership will be limited to a set length of time.

 

If you want to know more about buying a home, get in touch with our friendly team today – we’re always happy to help.

 

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