Navigating the intricacies of leasehold vs freehold when it comes to property ownership can feel overwhelming.
Whether you’re a first-time buyer or a seasoned investor, understanding these differences is key for your future happiness and security. It’s not just about buying a roof over your head, but about ensuring you make the right choice that aligns with your long-term goals and financial stability.
In this blog, we’ll explore the key differences between leasehold vs freehold properties, equipping you with the knowledge to make informed decisions.
From outlining the fundamental contrasts of each type of ownership, to exploring how a professional conveyancer can help you navigate the process, we’re giving you the tools to understand the real estate landscape with confidence.
Whether you’re thinking about buying your next home or considering an investment property, understanding these key differences is the first step toward a successful purchase.
What Is the Difference Between Leasehold vs Freehold?
When you’re buying a property it’s important to understand the difference between leasehold and freehold to make sure you’re making the right decision.
Below we’re exploring leasehold vs freehold definitions, including the types of properties these arrangements usually affect.
What is Leasehold?
When you buy a leasehold property, you own only the building, not the land it sits on, and only for a specific number of years. Once the lease expires, the property reverts to the landowner unless you extend the lease.
As the lease expiry date approaches, the lease’s value decreases, making it harder to sell and recoup your investment. Newly-created leases can range from 99 or 125 years to 999 years. A 999-year lease is basically the same as freehold as you don’t have to worry about its expiration.
However, shorter leases can be problematic. Properties with leases under 80 years can be difficult to sell and challenging to remortgage.
What types of properties tend to be leasehold?
Most flats are leaseholds, and houses can be too, particularly under shared ownership schemes.
With a leasehold, you don’t own the land the property is on, and for flats, you don’t own communal areas like staircases or hallways, nor the building’s structure.
Leases usually come with restrictions, such as bans on pets or the need for permission to make changes to the property. Violating these conditions can lead to legal action and the potential loss of your lease. The freeholder generally handles buildings insurance, but not contents insurance.
What is Freehold?
In contrast, when you buy a property freehold, you own both the building and the land it sits on until you decide to sell it.
This complete ownership means you are responsible for all costs related to the property, such as repairs, maintenance, and buildings and contents insurance.
There are usually no maintenance charges unless you share services, like communal gardens, with neighbours.
Additionally, you have the freedom to make structural changes, such as adding an extension, as long as you obtain the necessary planning permission from the local council.
What types of properties tend to be freehold?
Most houses are freehold, but not all, as some are bought through shared ownership schemes (where you buy a portion of the property and rent the rest).
Some flats offer the option to share the freehold with your neighbours as part of a management company.
Did you know our conveyancing quote tool can detect whether the property is a Leasehold vs Freehold? Click here to get your quote.
Key Differences Between Leasehold vs Freehold
Below we’re outlining some of the key differences between freehold and leasehold properties, and the things you need to be aware of if you buy your home leasehold.
This includes the length of ownership duration and the terms of selling, helping you make the right choice when it comes to buying your next property.
Ownership Duration
- Leasehold: A leasehold is a fixed term ownership as leaseholders are effectively renting from the freeholder. This means they don’t have exclusive ownership over the property and land it sits on.
- Freehold: A freehold property means permanent ownership so you don’t have to keep track of when the lease runs out or pay to extend it, which can be expensive and time consuming.
Control and Responsibility
- Leasehold: Those in leasehold properties have limited control as their responsibilities are often shared with the freeholder. Therefore, you’ll need written permission from the freeholder to make changes to the property and may have to pay additional fees.
- Freehold: In contrast, those in freehold properties have full control and responsibility for both the property and land, so long as you keep up with your mortgage repayments, and/or pay off your mortgage.
Costs and Fees
- Leasehold: Those in leasehold properties will incur ground rent, service charges, and potential for rising costs. These payments are on top of your regular mortgage so it can become costly.
- Freehold: A freehold property involves a one-time purchase cost, plus you won’t have to pay ground rent, service charges, or admin fees to the landlord. That said, any repairs and maintenance costs are borne solely by the owner.
Selling and Inheritance
- Leasehold: There can sometimes be complications in selling especially if there’s not long left on the lease (i.e. less than 80 years). It’s advisable in these scenarios to extend the lease, otherwise there is a potential decrease in value as the lease term shortens.
- Freehold: Generally freehold properties are easier to sell as they’re more attractive to prospective owners. In turn, these properties tend to retain value better over time. Seems as though you can do what you want with your home, freehold properties are often the more desirable choice for those wanting more control.
Leasehold vs Freehold FAQs
Can I extend or renew my lease?
You have the right to extend your lease if you have owned the property for two years or more, and if the lease has less than 80 years left on it. It’s best to extend sooner rather than later, as the shorter the remaining lease, the more costly it may be to extend.
Generally when you extend a lease, you extend it by 90 years. For example, if you have 70 years left and you extend the lease, the new lease term would be 160 years.
How much does it cost to extend or renew my lease?
The cost of extending a lease is typically 50% of the ‘marriage value’ – the additional value the property gains from having a longer lease.
Essentially, you pay around half of the theoretical increase in resale value. The cost can also be influenced by any improvements you’ve made to the property and its overall market value.
Are there any advantages to leasehold vs freehold?
Leasehold properties tend to be cheaper than freehold properties. However, this is due to the risks involved such as lease extension costs and ongoing ground rent and service charges.
What are the pros and cons of owning a freehold?
Owning a freehold property gives you full ownership of both the land and the building giving you more control. However, this comes with added financial responsibilities, including covering all costs related to the property’s upkeep, as well as the potential for higher upfront costs compared to leasehold properties.
Benefits of Choosing the Right Conveyancer
Navigating this process alone can feel overwhelming as you want to be confident you’ve considered all of the options available. Your home is a huge part of your life, so you need to be happy here, instead of facing stress and issues later down the line.
Some benefits of choosing a quality conveyancer are listed below.
Expert Guidance
Conveyancers can identify and help you avoid common pitfalls, such as misunderstanding the length of a lease, unexpected service charges, or issues with the freeholder’s responsibilities. By leveraging their expertise, you save valuable time and reduce the stress associated with making uninformed decisions.
Conveyancers also assist with completing necessary documentation, such as the contract of sale and the transfer deed. This ensures that every detail is covered, preventing legal issues that could arise after the purchase is completed.
Peace of Mind
Conveyancers handle the intricate details of property law, ensuring that every part of your transaction is legally sound and compliant.
Furthermore property transactions come with risks, such as potential problems over property boundaries or issues with the property’s title. Conveyancers help reduce these risks by carrying out thorough searches and investigations.
Tailored Advice
Having access to personalised advice ensures that your unique circumstances are taken into account when buying a leasehold or freehold property.
They will also break down complex legal documents making them easier to understand, ensuring you understand the different terms and conditions. Additionally, they can negotiate on your behalf to secure the best possible terms, providing clarity and confidence throughout the entire buying process.
Choosing the right solicitor is key. Use our quote tool to obtain and compare four different conveyancing quotes from different firms. Assess the prices and services, and choose the one that best suits your needs.
What Is the Leasehold and Freehold Reform Bill?
On November 27, 2023, the UK government introduced the Leasehold and Freehold Reform Bill for England and Wales, aimed at safeguarding the rights of leasehold property owners and tackling long standing issues in the property sector.
This legislation aims to improve consumer choice, streamline processes, reduce costs, and mitigate unfair practices.
As part of a broader effort to reform leasehold law, the bill follows the Leasehold Reform (Ground Rent) Act 2022, which abolished ground rents for most new residential properties in England and Wales.
What Do Homeowners Need to Know About the Leasehold Reform?
The Leasehold and Freehold Reform Bill brings significant positive changes for property owners and investors in England and Wales, including:
- Simplified and more affordable processes for extending leases or purchasing freeholds for existing properties.
- Elimination of ground rents for new leasehold properties.
- Prohibition of new leasehold houses in England and Wales.
- Extension of the standard lease term to 990 years with reduced ground rent.
- Immediate eligibility for benefits without a two-year ownership requirement.
- Transparent disclosure of admin fees and prohibition of building insurance commissions.
- Increased transparency in leaseholders’ service charges.
- Equal rights of redress for freehold property owners.
- Empowerment of leaseholders to challenge unfair practices.
- Allowance for leaseholders in buildings with up to 50% non-residential space to acquire freeholds or take over management.
These reforms reflect the UK government’s commitment to addressing the issues and disparities in the leasehold system, aiming for fairness and transparency across the board.
Conclusion: What Is Leasehold vs Freehold: Key Differences Every Buyer Should Understand
Understanding the differences between leasehold and freehold is key to choosing the right type of property ownership.
On the surface, it might seem like freehold is the better option, but this too comes with downsides such as an increased upfront cost. Similarly leasehold might seem less desirable as you’re essentially renting from the freeholder, however if you have long enough left on the lease, you benefit from lower initial purchase prices and fewer responsibilities for property maintenance.
Therefore the decision between leasehold and freehold is not clean cut and it depends on your individual circumstances and your future plans.
A conveyancer can help you through this process including providing tailored advice based on your specific situation, explaining the implications of leasehold and freehold ownership, and assisting with the review and negotiation of contracts.
However finding the right conveyancer is key as you want a professional you can rely on and trust. At Simply Move Home, we connect potential house buyers and sellers with our verified conveyancing solicitors, helping you make the best choice for one of the biggest purchases of your life!
When getting a conveyancing quote from SImply Move Home, you will receive four quotes from four different conveyancing firms. This gives you the ability to compare the quotes and the service they offer in order to choose the right conveyancer for you. Not only that, but our intelligent software detects whether the property is Leasehold or Freehold so you and your conveyancer are both provided with this information from the start, adding any relevant fees so there are no nasty surprises down the line.
For over 25 years, our service has helped accelerate the process of buying or selling a house as our sophisticated online system provides you with all of the information you need from the outset. Request your free conveyancing quote here in less than 20 seconds, and leave the rest to us!
