Leasehold or freehold: what’s the difference?

When searching for and purchasing your very first home in the UK, you may encounter a lot of jargon throughout the property buying process. Two terms many first time buyers have to research in great detail are ‘leasehold’ and ‘freehold’.

Whilst the number of leasehold residences dwarfs the concentration of freehold properties within the UK – just 4.2% of all new houses were sold as leasehold in England and Wales according to the latest ONS report – you may encounter both leasehold and freehold properties during your search.  With this, it’s well worth knowing the differences between these property statuses.

What is a leasehold property?

Whilst upon purchasing a leasehold property, you’ll be the legal owner of said property for a set period, you do not become the legal owner of the land it stands on.

Instead, you are awarded the right to live within the property for the lease term. As a result, you will become the leaseholder of the property whilst the person who owns the land will remain the freeholder. Once the lease period is up, the property and its land will revert back to being owned by the freeholder or landlord.

Lease periods are usually up to 125 years when agreements are initially devised. Leases with shorter terms (of less than 80 years) may be more affordable but are difficult to sell and should therefore be avoided. Renegotiating a lease and extending the term is particularly expensive and time-consuming. 

As a leaseholder, you will not only be liable for mortgage repayments, you’ll have to pay ‘ground rent’ to the freeholder. You may also have to pay an annual fee to a property manager for general maintenance of the building and its grounds.

A small proportion of properties are leasehold within the UK, with flats and terraced houses the most common leasehold property types.

How do freehold properties compare?

The majority of properties within the UK are freehold. By purchasing a freehold property, you’ll be the legal and sole owner of the building and any associated land.

As the freeholder, you are responsible for the upkeep of the building and its grounds, which gives you the freedom to make any improvements you’d like (subject to planning permission) to your property.

You also won’t have to pay ground rent or annual fees. Freeholders don’t have to worry about lease periods either. The property is theirs until they decide to sell or pass it on.

Why would you consider going leasehold?

With all the extra outgoings and the lack of legal ownership that go hand-in-hand with leasehold properties, you may be thinking why anyone would go leasehold!

Contrary to popular belief, however, there are several reasons why leasehold properties still make good investments as PropertySolvers details:

“Although it’s not always the case, leasehold properties tend to be cheaper. Many young people, for example, buy a leasehold flat to get a step on the property ladder.  A lot of properties under the Help to Buy first-time buyer scheme, for example, are sold as leasehold. In larger cities such as London and Manchester, buying flats is actually more common than traditional houses.”

The fact that leaseholders have less to worry about regarding building maintenance is another perk for those looking to move onto or up the property ladder more affordably. There’s the option to extend the lease, purchase the freehold or access those coveted 999-year leases too.

Is freehold or leasehold right for me?

Whilst there are more benefits than many people think when buying leasehold, there are some disadvantages that mean freehold properties come out on top the vast majority of the time. If you live in a city or another lease heavy location or want to purchase an apartment, going leasehold may be your only option with limited freehold housing stock available in these areas.

Whether you’re going leasehold or freehold, securing the right mortgage for your needs is crucial. Get in touch with our mortgage experts today to discuss your options.

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