Unfortunately, purchasing property is never as easy as 1,2,3. There are always difficulties that any property owner will have to overcome to get the desired end result. This is no exception when it comes to buying and managing a leasehold property. In this blog, we will answer all the relevant questions when it comes to you and your leasehold.
In England and Wales, most flats are leasehold properties. Whereas houses are usually freehold. It is rare to find a flat that is freehold and a house that is leasehold.
It is important to understand the main differences between freehold and leasehold, because both are different.
Quick Leasehold Guide Navigation
What is a leasehold & what does it mean?
When buying a property, it will either be known as a freehold or a leasehold. A freehold is when you solely own the property. Meaning you have to pay to maintain the property and so on.
Even though you will have bought the property, a leasehold basically means you still have a landlord. You may be paying for a mortgage and have the bills to show for it, but essentially you are leasing the property.
The freeholder (another word for the landlord) will own the property and the land it sits on. Additionally, the freeholder will receive ground rent from the leaseholder (which would be you) every month. So, even thought you will have a mortgage for the property, you will still have to pay rent.
Looking to sell a leasehold property, we'll buy it!
How do you find out how long a lease is left?
There's a few ways that you can find out how long is left on a lease. If you're a buyer, then typically the estate agent should be able to tell you how long as they will have access to the lease title.
Another option is to look at the Land Rigstery, which for a charge of £7 you can get a copy of the Leasehold Title. This will clearly tell you how long is left.
When reading the Leasehold title you can find the term that the lease expires underneath the sentence that should read something along the lines of "under which the land is held:"
What happens when the leasehold expires?
If the leasehold of your property does expire, then the property will revert ‘back’ to being a freehold instead of a leasehold. This will therefore mean ownership of the land and building will go back to the freeholder.
For example, if you had another sixty years left on the lease of your property in 2019. By 2079, even though you may have paid your mortgage outright, the property’s ownership would revert to your landlord.
There are no legal rights you will have around this either. Be careful with leasehold properties that you are not ripped off by ground rent or any other hidden costs.
Short lease? We'll still purchase it!
What should I consider before buying a leasehold?
Before taking any further steps on purchasing a leasehold property, carry out your own extensive research on the flat or house you are buying. Look to see how much the ground rent, annual service charges and insurances that will need to be paid when you move in.
A crucial part of your research into the property will be knowing how long is left on your lease. Of a property has less than seventy years left, you might struggle to sell the property in years to come or gain a mortgage on it now.
There is no doubt, those who are the leaseholder have more stress compared to those who are freeholders.
Our top tip: if purchasing a leasehold, choose one with a long lease.
If you are wanting to purchase a leasehold, make sure to select one that has around 90-120 years left on the lease. Around this number is considered a ‘good’ length. Although some leases are as long as 999 years!
Advantages & disadvantages of buying a leasehold
There are general a few pro's and con's that come hand in hand with buying a leasehold property, in reading about leasehold you may think it seems only negative, however there are a few positives:Pros
- Leasehold property is usually cheaper than freehold
- Sometimes you have less responsibility for repairs or maintenance
- You will have to pay ground rent to the freeholder
- You may have restrictions in what you can do to the property in the lease
- The property may drop in value as the lease gets closer to expiring
- If the lease drops below a certain length it can become harder to mortgage
Leasehold vs Freehold - The difference
A freehold property is the outright ownership of the property and the land it stands on, there's no time limit or period of ownership, you don't have to negotiate to extend a lease or be held to any particular contract on what you can and can't do to the property.
As described above you can see a few of the con's in regards to acquiring and owning a leasehold property, you essentially have to pay extra fees and don't own the ground that the property is on, meaning you always have to deal with the freeholder.
Given the choice, Freehold is obviously preferrable, however they usually come at more of a premium which is something to keep in mind.
Looking to sell your property? No matter if it's freehold or leasehold, we'll buy it
Are all flats Leasehold?
In 9 out of 10 cases, yes, flats are leasehold. There are a few occasions where this isn't the case but they are very few and far between. Some leasehold flats can be sold with a share of the freehold which requires participation in a residents management company.
Do Leasehold properties lose value over time?
The more the lease on the property runs down without being re-negotiated then technically yes, the property value will drop. This can however be counteracted by market movements as if the market increases significantly in your local area this can still mean the property increases in value.
Negotiating a lease extension will also add value if your lease has dropped below a desirable amount of years, which is typically around 40.