When buying a home in the UK, you can choose between a freehold or a leasehold property. Understanding the difference between the two is important as there are a few things you need to consider before making your house purchase.
So if you’re unsure what freehold and leasehold mean, keep reading to learn more about the two types of property.
What is a freehold property?
When you buy a property freehold, you own both the building and the land it sits on. As such, you can make any changes you want to the property structure and surrounding land, provided you have the necessary planning permission from your local council.
Most houses are freehold and they are the preferred option for most home buyers. This is because of the freedom they have to adapt their homes to their own needs. With a leasehold property, there are usually restrictions so this is something to consider when contemplating your options.
The main downside to a freehold property is the ongoing costs. You will be responsible for all expenses related to the property, from maintenance costs to buildings insurance, so these should be budgeted for when considering your affordability for a mortgage.
What is a flying freehold?
A flying freehold is part of a freehold property that extends, overhangs, or protrudes onto another property or piece of land.
- houses built on steep hills
- a property with a balcony that protrudes over somebody else’s land
- a property with an upper-level bedroom that extends over a shared archway
You should check to see if a property has a flying freehold before applying for a mortgage. This is because some lenders have blanket “no-lend” policies towards flying freeholds while most others will have specific conditions for lending.
Getting a mortgage on a freehold property
If you’re looking to move into a house, getting a mortgage shouldn’t be too much of a problem provided you meet the eligibility criteria set by lenders. Your chances will be improved if you have a stable income, a good credit score, and the money needed for the required deposit.
Getting a mortgage is a little trickier if you’re looking to move into a freehold flat as these types of properties can lose their value if the rest of the building falls into disrepair. It’s easier to get mortgages for leasehold flats as the freeholder is responsible for keeping all aspects of the building in tip-top condition, including the communal areas between properties.
But regardless of the type of freehold property you are interested in, the mortgage team at YesCanDo Money can help. We have access to the whole mortgage market so have the ability to find the lenders that will give you a mortgage based on your personal and financial circumstances.
Can I buy the freehold if I’m a leaseholder?
If you’re living in a leasehold property, you have the legal right to buy the freehold from the freeholder if you have owned your home for 2 years or more. The process is usually straightforward if you’re living in a house but if you’re in a block of flats, the other flat owners will need to agree to share the freehold with you as part of a management company.
Regardless of the type of leasehold property you are living in, it is wise to seek legal advice via a Leasehold Valuation Tribunal if you’re interested in freehold ownership.
How much does it cost for a leaseholder to buy a freehold?
The cost can vary significantly as it will depend on the value of the property and the length of your lease. The shorter your lease, the more expensive the property will be.
As is the case for all home buyers, you will need to factor in a range of other costs on top of the purchase price of the property. These include:
- stamp duty – How much is stamp duty?
- legal fees
- valuation fees
- Land Registry fees
- the freeholder’s legal and valuation fees
Buying a freehold can be complicated if you’re currently a leaseholder, especially if you’re looking to buy a property that houses a number of other tenants. As such, it’s wise to seek legal and financial help to ensure you don’t make any mistakes during the buying process.
What is a leasehold property?
Most flats are leasehold but some houses can be bought on a leasehold basis too. Leaseholds are a great option for many property owners as they are often cheaper than freeholds but they do come with added expenses, including the service charge set by the freeholder.
When you buy a leasehold, you own the property for a set amount of time but not the land it has been built on. Once the lease runs out, ownership rights revert back to the person with the freehold.
Leases can be anywhere between 40 years to 999 years, depending on the terms of the agreement. As such, you don’t have to worry about losing your home within a short period of time.
If you choose to move into a leasehold property, you will be required to pay certain annual costs, such as ground rent, which can be at a fixed rate or an escalating rate, and maintenance and service charges. These expenses can be a burden but as the freeholder is responsible for any repairs to the property, including communal areas and exterior walls, you don’t have to worry about these yourself.
Can you extend a lease?
You have the right to extend the lease if you can meet the qualifying criteria set by the freeholder. If you’re living in a flat, you can extend the lease by up to 90 years, and if you’re in a house, you can extend the lease by up to 50 years.
The cost of extending the lease will depend on a number of factors, including the property value, the length of the lease, the cost of ground rent, and the lease extension premium. You can get an estimate of how much extending a lease could cost using the Leasehold Advisory Service’s lease extension calculator.
Should I buy a leasehold house?
It depends on your financial circumstances. Leasehold properties are generally cheaper than freehold properties so your mortgage payments may be reduced. However, you will need to factor in the additional fees with a leasehold, such as ground rent and the service charge. Depending on the terms of your lease, these fees could be extended over time so you might have to budget for any price hikes.
When looking at leasehold properties, you should check the lease terms to find out how long there is left before the lease expires. This is because it can sometimes be difficult to get a mortgage if the lease has less than 80 years, and if there are less than 70 years, the property won’t have as much value. As such, you should aim for a property with a long lease i.e above 90 years.
We go into the pros and cons of buying a leasehold property below so it’s wise to take these into consideration when choosing between a freehold and leasehold property.
Getting a mortgage on leasehold properties
It’s possible to get a mortgage for a leasehold property provided you meet the criteria set by the mortgage lender. The longer there is left on the lease, the greater your chances of being approved for a mortgage.
More: Getting a Leasehold Mortgage
Freehold vs leasehold: the advantages and disadvantages
Before you start house hunting you may contemplate the difference between a freehold and leasehold property. There are a number of pros and cons that need to be considered. We outline some of these below but if you would like a wider discussion about the advantage and disadvantages of a leasehold or freehold property, get in touch with our team.
Advantages of buying a freehold property
- Full property ownership: So long as you keep up with your mortgage payments until the end of the mortgage term, you will have complete ownership of the property and the land on which it is situated, without having to pay ground rent to a landlord.
- Flexibility: When you buy a property freehold, you have the freedom to do what you want with your home, from having pets to renovating it to suit your needs. Of course, in the case of the latter, you may need planning permission but in all other circumstances, you are free to do as you please.
- Fewer fees: You will need to pay council tax and all of the other common household expenses but as you won’t have to pay ground rent to a freeholder or any service charges, you can be free of these leasehold expenses.
- No lease: As the property owner, you can live in the property as long as you want without having to worry about the lease running out. As such, you won’t need to pay thousands of pounds of costs for a lease extension if you decide to live in the property long term.
Disadvantages of buying a freehold property
- Maintenance costs: It’s great news that you don’t have to pay any service charges. But the downside of this is that you will have to cover the costs for all the repairs to your property.
- Property type: If you’re looking to move into a house, you will have lots of options. But if you’re hoping to buy a freehold flat, your options will be limited as there aren’t many of these on the market. Getting a mortgage for a freehold flat can also be tricky unless you meet the lender’s strict criteria.
- Higher sale price: Freehold properties tend to be more expensive than a leasehold property in the same area with the price difference generally being quite significant. That being said, some properties with a very long leasehold are similarly priced to freehold properties in the same area.
Advantages of buying a leasehold property
- Less responsibility: As you’re paying service charges for the upkeep of the property, you aren’t responsible for any repairs or building work. The freeholder is responsible for these so you have fewer expenses to worry about when things go wrong. You don’t have to worry about the upkeep of communal gardens either or any other communal areas within the property or on the land.
- Cheaper sale price: Leaseholds can be an affordable way to get on the property ladder, especially if you can secure a property with a short leasehold as they are often cheaper than properties with a freehold title. That being said, it can be difficult to get a mortgage for a property with a short lease but your chances can be improved with the help of a mortgage broker.
- Fewer insurance costs: You might want to consider contents insurance for the protection of your goods but when it comes to buildings insurance, this is covered by the freeholder.
Disadvantages of buying a leasehold property
- Freeholder fees: As we have already suggested, you will need to pay ground rents and service charges to the freeholder. You might also be asked to pay into a sinking fund to help cover the costs of any unexpected maintenance work in the future. Along with your mortgage repayments and the other associated costs, such as conveyancing fees and mortgage admin fees, you will have a lot to budget for if you opt for a leasehold.
- Limited ownership: As a leaseholder, you won’t have complete control over the property or the land it sits on. If you want to make changes to the property or have pets, you will need to get written permission from the freeholder.
- Property value: The value of the property will depend on how long there is left on the lease. The fewer years there are on the remaining term, the less valuable the property will be. This might make it more difficult for you to sell the property in the future. It also means you won’t profit from property price growth unless you decide to extend the lease.
- Business restrictions: If you want to run a business from home, you are free to do so if you own a freehold property. But if you buy your home leasehold, there may be restrictions on what kind of business you can run from home on your lease agreement.
Leasehold vs freehold: Which is right for you?
Leasehold vs freehold? There are advantages, to whichever property you choose.
Freehold property advantages include the opportunity to own the entire property with no major restrictions and leasehold property advantages include the opportunity to live in a house or flat with a potentially lower asking price. But as there are financial risks involved with both freehold and leasehold properties, it’s wise to weigh up your options carefully before applying for a mortgage.
YesCanDo Money Can Help
The team at YesCanDo Money have years of experience helping both freehold and leasehold customers so if you’re currently looking for a mortgage, get in touch with our team today.
We can talk to you about all of your mortgage options, whether you’re looking for a freehold or leasehold property, and we can make sure you get a fantastic deal on a mortgage too.
If you would like to know more, get in touch with our team of experts today, using the contact form below, WhatsApp, or by giving us a call at tel: 033 0088 4407.
We look forward to speaking with you soon.