What is the difference between leasehold and freehold property?

What is the difference between leasehold and freehold property?

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When buying property in the UK, house hunters and investors will find that properties fall into one of two categories, freehold and leasehold.

Whether you own a leasehold or freehold property will mean you have different responsibilities, and so here we take a look at the differences between both along with how these impact you as a property owner.

 

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What is a freehold property?

The majority of houses in the UK are freehold, meaning that an individual owns both the property and the land on which is stands.

As such, you as a freeholder as responsible for all property maintenance and management as well as any that is associated with the surrounding land. You are an absolute owner, and therefore don’t have to worry about dealing with any landlords or lease agreements. There are benefits to being a freeholder, such as the fact you own the property outright and therefore don’t have to worry about any landlord, ground rent or service charges. On the flip side, all maintenance falls to you, and you assume all responsibility for your property and grounds in the event that any issues arise such as border disputes or objections to any extensions.

 

What is a leasehold property?

When you buy a leasehold property, you in effect take over a long-term lease from a freeholder.

This situation is most commonly found in situations such as flat blocks – in buying a single flat for example, you may be leasing part of the whole property from a freeholder. Leases can range from 40 years to 999 years in length, the latter being the most common. If you are in possession of the property at such time when the lease expires, it’s up to you to negotiate an extension of the lease, or the return of the property to the owner (freeholder).

There are some benefits to being a leaseholder, perhaps the biggest of which is the fact that you are not responsible for the land or any communal spaces. For example, if you own a flat, in exchange for a service fee, the freeholder will take care of all the maintenance required in garden and communal areas. However, when you are a leaseholder, you need to factor in any restrictions on the lease as well as how long is left on it as this can affect your ability to sell it on. Some mortgage lenders won’t approve applications when there are ground rent clauses involved, while others require at least 70 years to be left on the lease when considering applications. This can potentially mean prospective buyers would be left unable to procure financing, and so there’s a risk the property can be rendered unsaleable.

 

In summary

 

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Many factors can impact your decision, but generally speaking, most buyers will prefer to acquire a freehold property. A rapid rise in ground rates has recently resulted in leaseholds being the number one concern for homebuyers, according to a new study. If you are unsure of your options, discussing the difference between leasehold and freehold property in detail with your estate agent can help you best determine the right choice for you.

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