What’s the difference between leasehold and freehold?

The definition of a leasehold property is owning the property for a fixed term; however, this doesn’t include owning the land on which the property actually stands. When the lease expires, the ownership of the property automatically goes back to the freeholder or owner.

Freehold property is defined as ownership of the property itself and the land on which it has been built. With freehold you don’t pay annual ground rent, so make sure you check whether your future home is freehold or leasehold. Leasehold, on the other hand, do pay maintenance fees, annual service charges along with a share of the buildings insurance.

Leasehold

Let’s talk about leasehold property first. When you buy this type of property, the lease is taken over from a previous owner. You won the property but not the land. This means you aren’t responsible for any running costs or maintenance of the building. You may be charged to pay for any unexpected work that has to be carried out as well as a service fee.

These factors continue until the lease runs out and is something you should take into consideration if the property you are buying is leasehold.

Getting a mortgage for a leasehold property could also be a problem if the lease isn’t for 70 years or more. The mortgage needs to be 50-55 years on the lease at the start of your mortgage. Many lenders prefer 25-30 years left on the lease when the mortgage comes to an end. If this is not the case, when it comes to selling the property, difficulties could be encountered if there are less than 80 years left on the lease itself.

A good idea is to ask the freeholder or landlord to extend the lease. This can be done at any time. After two years there’s the option to extend the lease by 90 years as long as you are a qualifying tenant. This information is for properties bought in England or Wales while properties in Scotland and Northern Ireland have different rules.

Freehold

Now for freehold property. Freehold means you are the owner of the property along with any land that it stands on. Responsibility is yours for the maintenance of both the land and the building. This includes repairs while you own the property plus your name is entered into the land registry as being the freeholder. 

Usually, houses are freehold and flats are leasehold where the owner is known as the freeholder. If houses are changed into flats and sold, they are sold as share of freehold. This means the property owner shares the freehold with other inhabitants in the building.

If you do need any more information or useful advice on leasehold and freehold properties, don’t hesitate to contact us. One of our experienced team will be able to answer any questions you may have. You can contact us by phone, by letter or by completing the online form found on our website.