When you’re exploring the housing market, looking to buy a new home, you’ll find that some properties come with leasehold ownership and others come with freehold ownership. What’s the difference, and is one better than the other? Here’s a quick run through the key differences, and some pros and cons for each.
Freehold
The most straightforward form of property ownership, freehold means you own the entire property outright, including the land it sits upon, for an unlimited amount of time. On the Land Registry, it will state that you own the ‘title absolute’. You also have ownership of the airspace above the property and, theoretically, the earth beneath it, should you wish to dig down to create a cellar or bunker, if that’s your sort of thing.
If you’re looking to buy a house, as opposed to a flat, freehold is much more common than leasehold.
The pros:
- Because you own the property and the land, you will not have to pay any sort of ground rent or service charges moving forward.
- The initial conveyancing fees should be lower because there are less checks and balances required when compared to purchasing a leasehold.
- There is no additional land owner or landlord who you must answer to.
- There is no risk of the lease running out
But…
- You are entirely responsible for maintaining and repairing the property and its land.
Leasehold
With a leasehold, you own the property itself (everything inside the walls of the home), but somebody else owns the land it sits on and the land/building around it. Leaseholds are common when it comes to buying a flat, less so when buying a house.
Importantly, leaseholds are rarely infinite – they come with a timeline. In theory, this means your ownership of the property could eventually come to an end. However, leases often run for 90-100 years and can even be as long as 1,000 years, so, unless you’re hoping that your home will be passed down through generation-after-generation of your family, you’ll not need to worry about the lease expiring.
The pros:
- Because the land and building around your property are owned by someone else, you will not be solely responsible for maintenance or repairs. Such costs will be shared between the freeholder and your fellow leaseholders.
But…
- You will often have to pay ground rent and contribute a monthly service charge for upkeep and maintenance of the land and building around your property, a monthly expenditure which you’re wise to budget for before completing your purchase.
- If the lease is less than 90 years, it can sometimes be difficult to secure a mortgage. A short lease can also make it tricky to sell the property when the time comes.
- Despite being the owner of the property, you will still have to deal with the freeholder, aka landlord, when it comes to certain matters. This might include gaining permission for any structural changes to the property, or accepting the freeholder’s pet-ownership policies.
Share of Freehold
There is a third option, Share of Freehold, increasingly common with houses which have been split into individual flats.
When you buy one of these flats, you may well do so on a standard leasehold while someone else maintains freehold ownership of the entire building. However, it’s also possible that you’ll buy it on a Share of Freehold basis. This means that the owners of each flat within the building take part-ownership of the Freehold and thus share the costs of maintaining and repairing the building and its land.
Can I buy the Freehold later down the line?
Even if you make your original purchase on a leasehold basis, there is sometimes the opportunity to later buy the freehold.
While leaseholds on houses are still uncommon, the rising popularity of new-build estates has made them more common than before – developers build 100 houses in the same area and choose to keep the freeholds much like the owner of a block of flats. In such a case, you may be able, one day, to buy your freehold outright.
If you’re purchasing a flat, however, be aware that you will never be able to own the entire freehold (unless you can afford to buy an entire block of flats?) and may instead have the opportunity to buy a share of the freehold alongside your fellow leaseholders.
There is no right or wrong answer
You might look at the pros and cons listed above and think that freehold is good and leasehold is bad, but this isn’t the case, it often just depends on the type of property you’re looking to buy.
Freeholds are nice and simple; there are very few strings attached to your ownership. While leaseholds aren’t bad, they do require you to tread carefully and make sure you read all of the contracts and paperwork closely. Keep an eye on the length of leasehold first and foremost – if it’s long, you needn’t worry, but if it’s short, you must take a moment to consider the implications for things like securing a mortgage and maintaining resale value.
Have you ever successfully turned your leasehold into a freehold? We’d love to hear about it. And if you have any questions for our property expert, Russell Quirk, he’s on stand-by to help you out. In both cases, drop us a message in the comments section below.
