What is freehold and leasehold?

When buying a house, it’s important to know the terms and conditions of the property. Some houses or sold as freehold while others are leasehold.

It’s important you know the difference because one will result in you needing to pay ground rent. As a result, you need to figure in those payments to your budget. Here is what you need to know...

Freehold

The most common type of property in the UK is a freehold property. This is when the buyer completely owns the property and the land that it is on.

This kind of ownership is often referred to as ‘title absolute’, although if you fail to pay your mortgage on the property it can still be repossessed by the lender.

As a freehold owner, you are responsible for all costs related to the property, such as repairs, buildings insurance and any communal responsibilities shared with neighbours.

Most properties in the UK are freehold, particularly those that were built before the 1970s.

Leasehold

If you buy a leasehold property, you own it set amount of time, i.e. the term of the lease. This can be anywhere from 99 to 999 years.

A 999-year lease is pretty much like owning a freehold due to the length of time as no-one will outlive that timescale.

But once the lease runs out, ownership of the property transfers to the freeholder – that is the person or organisation that owns the land.

While apartments are usually leasehold, some houses may also be sold with leases. Your conveyancing solicitor should tell you but if you are unsure do ask them to clarify whether your prospective new home is leasehold or freehold

Most flats require regular ground rent and management fee payments as they are leasehold. These are usually stipulated and can be obtained from the selling agent.

Leases can also include restrictions. Some freeholders won’t allow you to have pets and you might need to ask permission to make changes to the property.

One advantage of a leasehold property is that you can expect the freeholder to cover most maintenance costs and they often take care of building insurance too.

The disadvantage is that you never own your property – although if the lease is more than 100 years that is unlikely to be a huge concern to you.

Which is best?

Of course there are pros and cons to freehold and leasehold. Most buyers prefer freehold because there is security and safety with it. You’re in control and no one has any say in your property.

However, bargains can often be had with leasehold properties, especially if they have shorter terms on them.

It’s also worth knowing that if you’ve been in the property for more than two years, you have a legal right to extend your lease, although this comes at a hefty price.

In all these circumstances, it’s best to check everything with the selling agent and also get your solicitor to do some further digging if you’re still unsure.