Leasehold vs Freehold: What’s the Difference?

When someone decides to buy their first home, one of the first things that can be a little confusing is the difference between a leasehold and freehold property. It’s important to understand what these two terms mean if you want to avoid costly mistakes.

What is a Freehold Property?

If you are purchasing a freehold it means that, once you have paid for the property or got the mortgage, you own it outright. Most older homes are freehold and, while it means that you are responsible for the land that it is on and maintaining structures such as the roof and walls, it’s yours to do with what you want.

What is a Leasehold Property?

This is more like long term renting than buying a property outright. You purchase the lease for the property from the landlord for a set period. This is usually between 99 and 120 years. You can opt to extend the lease for a fee if it has fallen below a certain length, as long as you have lived in the property for a couple of years.

Leaseholds have become more widespread when purchasing homes, particularly if you are buying a flat or maisonette.

The Pros and Cons of Leasehold vs Freehold

There are a lot of things to consider here, especially when you are thinking of buying a leasehold. It’s important to take your time to consider which is best for both your current and future needs as each represents a sizeable investment.

Freehold means you buy the property outright and you don’t have to depend on another party nor find the money for extras such as services and ground rent. If you don’t feel you want to be troubled with maintaining and repairing the property, however, it can put you off. Freeholds also tend to be more expensive than leaseholds but you can undertake work on them such as adding an extension.

A leasehold ties you to a freeholder and certain conditions, which may even include how you use the property and what changes you can make. If you are after relatively short-term accommodation (for example, if you are only going to be living there for a few years), it makes sense because of the lower cost.

The length of the lease can be an issue in some cases. It’s generally considered that any length under 90 years should be approached with caution. It can present problems when coming to sell the lease as well as when buying as the value of a leasehold depreciates quickly (It’s also something that may also affect whether you can get a mortgage or not).

Buying a leasehold may also come with some extra or ‘hidden’ costs. For example, the small print in the lease contract may say that you have to pay a managing agent a certain amount a year, fork out for ground rent and pay a share of the buildings insurance.

When you are purchasing a leasehold, it’s important to investigate these extra charges fully and make sure that you will be able to meet them over and above your mortgage and other payments.

Want to find out more about freehold vs leasehold? Or have other questions about buying or selling a property? Contact our team at Graham & Co and we will be happy to help. You can also read lots more helpful articles on our blog.