What’s the difference between freehold and leasehold?
If you’re buying your first home – congratulations! This is an exciting time and a milestone you have likely been saving for years to achieve. It can also be a really stressful period. Will you find a house you love? Is it within budget? In the area you wanted? How much should you budget for conveyancing? What is conveyancing?!
There’s a lot to think about, many decisions to be made and an overwhelming amount of jargon to get your head around.
As you start your hunt for the perfect property, there are two terms that you’ll see popping up time and time again:
1. Leasehold
2. Freehold
What is a freehold property?
If you see a property described as ‘freehold’ you will own the building and the land on which it sits. This is the most common type of property in the UK. Because you own the entire property, you’re in complete control of (and responsibility for) what happens to the building and its land, such as the garden.
What is a leasehold property?
According to official figures, around 20% of the UK’s property stock is leasehold – meaning it’s far less common. You’ll usually see this description used when searching for a flat rather than a house. This type of property differentiates between the building itself and the land. So, if you buy a leasehold property, you own the building (the house or flat), but someone else owns the land on which the property is built.
In effect, you’re leasing or renting the land from the freehold owner. Leaseholds are referenced in years; they often last from 99 up to 999 years. You’ll need to keep in mind that if you aren’t the first owner of the leasehold property, some of the leasehold term will have already been used up.
One of the plus sides of a leasehold is that while you’ll own your property and be responsible for its maintenance, the landowner is usually responsible for arranging the upkeep of the land, buildings insurance and common areas such as hallways (but not the actual cost of doing so). You won’t have the hassle of gardening or maintaining a safe stairwell, but you will pay a service charge (a share of the cost of communal works) and may have to pay ground rent for that convenience. Those fees can push up the overall cost of your property, so you’ll need to factor them in when planning your budget.
The leasehold term can also influence your ability to remortgage, with most lenders typically requiring a minimum of 70 years remaining.
Can the leasehold term be extended?
Yes, you can request a lease extension. You can also ask the landlord if they’d be willing to sell their freehold. While they aren’t obligated to do so, new legislation aims to make the system fairer, quicker, cheaper and give more rights to leaseholders.
When fully enacted (and we do not yet know when this will be) The Leasehold and Freehold Reform Act 2024 should make it faster and cheaper for leasehold property owners to extend their leasehold terms and buy the freehold. It also aims to clarify service charges, so you can make an informed decision about affordability before you buy.
Secondary legislation is required for many of the provisions in the Act to be enforced. If you’re considering buying a leasehold property, our residential conveyancers and property experts can provide timely advice and guidance. Contact us to speak to a member of our team.